Finance

How the buzz around Chinese AI model DeepSeek sparked a massive Nasdaq sell-off

Published

4 months ago

January 27, 2025

A young Chinese AI startup DeepSeek sparked a massive rout in U.S. technology stocks on Monday as its highly competitive — and potentially shockingly cost-effective — models stoked doubts about the hundreds of billions that America’s biggest companies are spending on artificial intelligence.

DeepSeek’s emergence is shaking up investor confidence in the AI story that has been lifting the U.S. bull market the past two years. It calls into question the hype around Nvidia’s chips and rippled all the way through the market to hit shares of power producers who were set to get a boost from AI data center demand.

Here’s how the DeepSeek-triggered market sell-off on Wall Street unfolded:

New Reasoning Model

DeepSeek was founded in May 2023 by Liang Wenfeng, who partly funded the company by his AI-powered hedge fund. In late December, the AI developer launched a free, open-source large language model that it says took only two months to develop and less than $6 million to build.

On Jan. 20, the Hangzhou, China-based DeepSeek released R1, a reasoning model that outperformed Open AI’s latest o1 in many third-party tests.

DeepSeek is seeking to differentiate from its competitors with its reasoning capabilities, meaning that before delivering the final answer, the model first generates a “chain of thought” to enhance the accuracy of its responses.

Top-performing Model

The buzz around DeepSeek’s R1 seemingly picked up steam after Alexandr Wang, CEO of ScaleAI, touted its competitiveness against the best products from the U.S. megacap tech giants, which most had thought were leading the AI war.

“What we found is that deep seek, which is the leading Chinese AI Lab, their model, is actually the top performing, or roughly on par with the best American models,” Wang, whose company provides data to help companies train their AI tools, said on CNBC from the World Economic Forum in Davos, Switzerland last week.

Wang noted that DeepSeek actually has more H100 chips from Nvidia than expected — about 50,000 of them. Those chips are the processor of choice for AI firms in the U.S. such as OpenAI and the U.S. has banned the sale of advanced AI chips to China.

Nvidia shares took a 3% hit on Friday as chatter about DeepSeek started to pick up.

No.1 App

But it wasn’t until the past weekend when the hype surrounding DeepSeek reached a fever pitch on social media.

Marc Andreessen, co-founder and general partner of venture capital firm Andreessen Horowitz, sang DeepSeek’s praises on X, saying the R1 model is “one of the most amazing and impressive breakthroughs” he’s ever seen. Andreessen’s portfolio includes Airbnb and dozens of AI companies.

Tech investor Chamath Palihapitiya on X pointed to DeepSeek’s “very good” report, which said its R1 model “essentially cracked one of the holy grails of AI: getting models to reason step-by-step without relying on massive supervised datasets.”

The Chinese AI app DeepSeek in Apple’s us App Store on an iPhone 12. In the ranking of free apps, DeepSeek was even ahead of ChatGPT from OpenAI.

Picture Alliance | Getty Images

By this point, DeepSeek’s mobile app surged to the top of Apple’s appstore download charts over the weekend in the U.S., marking a tangible threat to pricier models such as OpenAI’s ChatGPT.

U.S. futures were down big overnight Sunday and investors woke up to a sea of red Monday morning.

Nasdaq Composite, 1-day

AI darling and chip producer Nvidia saw shares tumbling more than 12% Monday, on track for its worst day since March 2020.

Nvidia, 1-day

Other chip makers as well as power providers were hit big. The tech-heavy Nasdaq Composite is down as much as 3.6% Monday, dragged down by megacap names.

Finance

Stocks making the biggest moves midday: WOOF, TSLA, CRCL, LULU

Published

2 days ago

June 6, 2025

Business Finance News

Finance

Swiss government proposes tough new capital rules in major blow to UBS

Published

2 days ago

June 6, 2025

Business Finance News

A sign in German that reads “part of the UBS group” in Basel on May 5, 2025.

Fabrice Coffrini | AFP | Getty Images

The Swiss government on Friday proposed strict new capital rules that would require banking giant UBS to hold an additional $26 billion in core capital, following its 2023 takeover of stricken rival Credit Suisse.

The measures would also mean that UBS will need to fully capitalize its foreign units and carry out fewer share buybacks.

“The rise in the going-concern requirement needs to be met with up to USD 26 billion of CET1 capital, to allow the AT1 bond holdings to be reduced by around USD 8 billion,” the government said in a Friday statement, referring to UBS’ holding of Additional Tier 1 (AT1) bonds.

The Swiss National Bank said it supported the measures from the government as they will “significantly strengthen” UBS’ resilience.

“As well as reducing the likelihood of a large systemically important bank such as UBS getting into financial distress, this measure also increases a bank’s room for manoeuvre to stabilise itself in a crisis through its own efforts. This makes it less likely that UBS has to be bailed out by the government in the event of a crisis,” SNB said in a Friday statement.

‘Too big to fail’

UBS has been battling the specter of tighter capital rules since acquiring the country’s second-largest bank at a cut-price following years of strategic errors, mismanagement and scandals at Credit Suisse.

The shock demise of the banking giant also brought Swiss financial regulator FINMA under fire for its perceived scarce supervision of the bank and the ultimate timing of its intervention.

Swiss regulators argue that UBS must have stronger capital requirements to safeguard the national economy and financial system, given the bank’s balance topped $1.7 trillion in 2023, roughly double the projected Swiss economic output of last year. UBS insists it is not “too big to fail” and that the additional capital requirements — set to drain its cash liquidity — will impact the bank’s competitiveness.

At the heart of the standoff are pressing concerns over UBS’ ability to buffer any prospective losses at its foreign units, where it has, until now, had the duty to back 60% of capital with capital at the parent bank.

Higher capital requirements can whittle down a bank’s balance sheet and credit supply by bolstering a lender’s funding costs and choking off their willingness to lend — as well as waning their appetite for risk. For shareholders, of note will be the potential impact on discretionary funds available for distribution, including dividends, share buybacks and bonus payments.

“While winding down Credit Suisse’s legacy businesses should free up capital and reduce costs for UBS, much of these gains could be absorbed by stricter regulatory demands,” Johann Scholtz, senior equity analyst at Morningstar, said in a note preceding the FINMA announcement.

“Such measures may place UBS’s capital requirements well above those faced by rivals in the United States, putting pressure on returns and reducing prospects for narrowing its long-term valuation gap. Even its long-standing premium rating relative to the European banking sector has recently evaporated.”