`wake-up Call': How A Chinese Startup Could Rock Trump's Stock Market

Wall Street was bullish that the Trump agenda would unleash investment in artificial intelligence that would turbocharge productivity and expand the economy. The arrival of a cheaply made Chinese alternative has upended that calculus.

The sudden emergence of DeepSeek, which was purportedly made on an open-source network for less than $6 million, has forced investors to reckon with the possibility that easy-to-use and powerful AI tools can be produced inexpensively. That raises questions about whether the hundreds of billions of dollars they have pumped into AI startups on the belief that the technology would require expensive hardware and infrastructure was worth it.

If DeepSeek is as affordable and transformative as advertised, the stock market bull run that welcomed Donald Trump back to the White House could hit a major roadblock.

“A Chinese AI company releasing such a capable open-source model should be a wake-up call for America,” Chamath Palihapitiya, a major Silicon Valley investor, Trump donor and co-host of the popular “All-In" Podcast, wrote in his Substack.

For more than two years, Silicon Valley giants have fueled the stock market’s rise as investors rushed to get in early on a technology widely viewed to be as consequential as the Internet itself. But DeepSeek threatens to derail the driving force behind the market rise that Trump and his allies have repeatedly pointed to as a sign of Wall Street’s optimism for his second term.

Markets fell Monday as investors digested the now-shifting dynamics around AI, with major tech stocks plunging, led by Nvidia, which produces hardware that’s essential for the industry’s development.

Shares in the company dropped more than 16 percent during trading hours, erasing almost $590 billion from its market cap— the largest single decline in history. Other tech stocks sold off as well, before recovering many of those declines.

“We’re coming back down to planet Earth,” said Ed Yardeni, president and chief investment strategist at Yardeni Research. “Technology is probably one of the most, if not the most, competitive industries.”

Trump has made investments in new infrastructure to support the industry a cornerstone of his economic agenda, throwing his weight behind a $500 billion venture led by OpenAI, SoftBank and Oracle to build data centers and energy projects that he says will create up to 100,000 jobs. Last week, he signed an executive order to boost the technology, which he said would drive growth, “enhance our economic and national security, and improve our quality of life.”

As DeepSeek’s mobile application climbed to the top of Apple’s download charts over the weekend — and its technology drew praise from Trump allies like Marc Andreessen — investors began to reassess the AI projects they have supported. The erasure of hundreds of billions of dollars of value in top tech companies could ripple through the broader economy if losses mount in the coming days.

But while DeepSeek immediately set off a panic in the markets, its development may ultimately prove to be a benefit to the economy — and the AI industry. Steve Sosnick, chief strategist at Interactive Brokers, called the company’s breakthrough “an inflection point.”

“This doesn’t negate the investment theme of AI or the potential for AI,” Sosnick said. “As a matter of fact, it could actually accelerate to the point at which AI delivers real productivity to a wide range of companies and individuals.”

At the White House, officials such as AI and crypto czar David Sacks sought to distance Trump from the market’s reaction to the DeepSeek news by suggesting that President Joe Biden’s approach to AI technology may have contributed to the Chinese application’s rise.

“By stifling innovation at home and failing to cut off China’s access to American technology, President Biden created an opportunity for our foreign adversaries to make gains in AI development,” a spokesperson for the White House Office of Science and Technology said.

Still, market participants warned that losses could continue if DeepSeek — whose functions are similar to OpenAI’s ChatGPT— has staying power. AI-dependent tech stocks were already running hot and, as was the case with the internet, some of the industry’s early winners may not survive its first winter.

“The history of really transformative new technologies is that there’s overexuberance, prices get inflated,” said Morningstar Indexes strategist Dan Lefkovitz, noting that the markets rose sharply before sputtering out as the internet went mainstream. “There’s definitely been concern around how big some of the biggest companies in the market have gotten — and so much of the gain is driven by AI and AI-related companies.”