DeepSeek sell-off gives Gulf investors plenty to think about
The arrival of a Chinese AI chatbot has implications for geopolitics, markets and Mena wealth funds
By
Frank Kane
January 28, 2025, 11:48 AM
Imago/Xinhua via Reuters Connect
Traders in New York. The tech-dominated Nasdaq index lost $1 trillion in value on Monday
From out of nowhere, it seems, the Chinese artificial intelligence business DeepSeek has erupted on to the world stage. Its arrival has huge implications for geopolitics, financial markets, advanced technology – and Arabian Gulf investment strategies.
The AI startup was set up in 2023 by Chinese hedge fund manager Liang Wenfang, and its
new chatbot was the most downloaded app in the US at the weekend.
DeepSeek offers what it claims is a viable rival to OpenAI’s ChatGPT and other tools based on AI large language models – but at a fraction of the cost incurred by OpenAI and the other Big Tech companies that have been the beneficiaries of the AI bandwagon.
DeepSeek says it has made such rapid advances by squeezing greater efficiency out of chips developed by
Nvidia, the US company that held the title of “world’s most valuable company” on Monday morning.
No longer. Nvidia can now claim to be the world’s biggest one-day loser, with $560 billion wiped off its value on Wall Street.
The other “Magnificent Seven” tech companies – Apple, Microsoft, Alphabet, Amazon, Meta Platforms, Nvidia and Tesla – all suffered in the savaging of stocks associated with AI, with $1 trillion of value lost from the tech-heavy Nasdaq index.
The reason for such a mass freakout by US investors is simple: if China has managed to develop a system that rivals ChatGPT for $6 million, why have they been pouring hundreds of billions into AI firms – and the associated data centres and energy hubs – for the past couple of years?
There is a deeper geopolitical reason for the market panic: Washington has
limited Chinese companies’ access to Nvidia’s
most advanced AI chips in an attempt to maintain American “AI dominance”.
China, it now appears, doesn’t need them after all. Its efficient companies can match the US by using cheaper, less powerful chips.
AI capability is also at the core of 21st-century military and defence strategies, so DeepSeek’s emergence is stoking neuroses in Washington that have been stretched to breaking point by the anti-China rhetoric of President
Donald Trump.
Market watchers with longer memories called it a “Sputnik moment”, recalling the national panic in 1957 when the Soviet Union launched its first satellite – and debunked the theory of America’s inexorable superiority in
space and defence technology.
DeepSeek has also shown up the dependency of US markets on the tech sector. The Magnificent Seven account for a third of the S&P 500 index and for the past couple of years, their rise has been apparently unstoppable. That all changed in a day.
Few outside the circles of the new president will shed tears for the “tech bros” who run the sector and lost $100 billion in personal wealth on Monday.