- The release of a cheaper, less resource-intensive AI model, known as R1, from China-based tech firm, DeepSeek, has sent shockwaves through global stock markets.
- On news of the launch the tech-heavy NASDAQ fell 3% on the day yesterday, losing around US$1 trillion in value, with NVIDIA alone falling by 17% and losing US$600 billion in value.
- Meanwhile, the Chinese government has sought to bolster its economy against increasing global uncertainty by ‘guiding’ insurance funds, mutual funds and social-security funds to increase their investment in yuan-denominated shares, known as ‘A shares’.
The launch of a new, cheaper AI model by Chinese tech firm DeepSeek — known as R1— has sent tremors through global stock markets and the crypto market. Around US$1 trillion (AU ($9.91)$1.5 trillion) of value was wiped off the tech-heavy US-based NASDAQ in a single day yesterday.
The world’s largest chipmaker and AI titan, NVIDIA, fell 17% (around US$600 billion, or AU$957 billion) — the biggest single day fall in US stock market history.
Crypto, with its growing links to AI, wasn’t spared from the market rout with most coins seeing big falls — data from CoinGecko shows Bitcoin lost about 5% in just a few hours and many altcoins saw double-digit drops.
Since then the crypto market seems to be stabilising: Bitcoin is back over US$100,000 after briefly falling into the low 98,000s; and many alts have regained much of yesterday’s losses.
Meanwhile, a new Chinese government plan to increase long-term investment in its stock market could see as much as 1.7 trillion yuan flow into the market from insurance funds, mutual funds and social security funds, according to UBS.
Chinese financial regulators last week released the action plan ‘guiding’ such funds to increase investment in Chinese yuan-denominated domestic shares, known as A shares, as a stabilising measure amid increased uncertainty following Donald Trump’s return to the White House.
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DeepSeek R1 A ‘Sputnik Moment’ For AI, Says Marc Andreessen
So, why have global markets responded so badly to this new AI model coming out of China? The main reason is the cost to make and run this model is orders of magnitude lower than what Western companies, like OpenAI and Anthropic, have been spending. And the performance is similar.
DeepSeek said the development of its R1 model cost just US$5.6 million (AU$8.9 million) while the founder of Anthropic, Dario Amodei, last year estimated it costs between US$100 million (AU$159 million) to US$1 billion (AU$1.59 billion) to train their AI models. The R1 model also uses less powerful NVIDIA chips and is less resource-intensive than the US-developed models, sparking fears among investors that there may be less demand for NVIDIA chips moving forward.
DeepSeek has also open-sourced the R1 model, meaning anyone can access it for free. Coupled with its lower demand for resources, this potentially massively expands the usefulness of AI by making it far more broadly accessible.
Dr Andrew Duncan, director of science & innovation at the UK’s Alan Turing Institute told The Guardian:
Academia and the private sector will be able to play around and explore with it and use it as a launching…It demonstrates that you can do amazing things with relatively small models and resources. It shows that you can innovate without having the massive resources, say, of OpenAI.
Dr Andrew Duncan, Director of science & innovation at the Alan Turing Institute High-profile venture capitalist and founder of investment firm a16z, Marc Andreessen, called the launch of DeepSeek’s R1 “AI’s Sputnik moment”, referring to the Soviet Union’s surprise launch of the satellite Sputnik 1 into low Earth orbit in October 1957, triggering the space race.
Deepseek R1 is AI’s Sputnik moment.
— Marc Andreessen 
(@pmarca) January 26, 2025
Similar to views of China before the launch of R1, until the launch of Sputnik the US had thought the Soviet Union lacked the technical expertise and resources to successfully launch a satellite.
China Looks to Sure-Up Stock Market Amid Trump Uncertainty
In an attempt to bolster its economy against Trump craziness — the US President is still threatening 60% tariffs against all Chinese imports — the Chinese government is looking to boost long-term investment in its domestic stock market.
According to South China Morning Post (SCMP), Meng Lei, the China equity strategist at UBS said in a report on Friday that insurance firms are being ‘guided’ by Chinese financial regulators to invest up to 30% of new premiums into the nation’s stock market, potentially triggering an increase of 1 trillion yuan of inflows in the next year alone. Meanwhile Lei expects mutual funds and social security funds could inject a further 590 billion and 120 billion yuan respectively.
Related: Did China Sell All its Bitcoin? CryptoQuant Founder Says Yes
In separate note to investors, James Wang, Head of China Strategy at UBS said that this move should help the Chinese economy navigate the increased global uncertainty:
By setting up a longer-term investment horizon for the major institutional investors on the A-share [market], this should reduce the inherent volatilities in the market.
James Wang, Head of China Strategy at UBS The post China’s Cut-Price AI Model Shocks Global Markets, Coincides With Boost to Chinese Shares appeared first on Crypto News Australia.
