DeepSeek’s AI Breakthrough Rattles Markets, Then Fades

When DeepSeek, an obscure Chinese AI lab, dropped its V3 model in late 2024, traders panicked. The open-source system ran on cheaper chips while matching performance of pricier Western counterparts. Nvidia plunged 17% in a single session, erasing $600 billion in value. Broadcom and ASML followed suit.

Eleven months later, the narrative flipped completely. Nvidia soared past $5 trillion valuation. Broadcom rallied 49% in 2025. Markets absorbed the shock and moved on—as they always do.

The real disruption came in January 2025 with DeepSeek's R1 release. Benchmarks showed Chinese AI could compete with OpenAI and Google at lower cost. "This wasn't just about technology," said Gartner's Haritha Khandabattu. "It forced a fundamental repricing of China's competitiveness in frontier AI."

Morningstar's Brian Colello noted the initial fear: collapsing demand for AI hardware. But semiconductor stocks ultimately weathered the storm. The episode revealed how quickly markets discount even seismic technological shifts.