The S&P 500 index dropped after Chinese artificial intelligence (AI) model DeepSeek became the most popular application in the Apple (AAPL) App Store over the weekend.
The DeepSeek model was reportedly much cheaper to build than those of its US competitors, raising doubts over how many AI chips will be needed to train future models. On Monday, AI chip designer Nvidia (US:NVDA) saw its shares fall 17 per cent, knocking over $500bn (£402bn) from its market capitalisation. Similarly, Broadcom (US:AVGO) was down 18 per cent, which contributed to dragging the S&P 500 down 1.5 per cent.
The consensus view in the US was that to build better AI models companies just needed more computing power and data. This is known as the ‘neural scaling law’ and is why Microsoft (US:MSFT), Amazon (US:AMZN), Alphabet (US:GOOGL) and Meta (US:META) have spent billions of dollars on Nvidia’s graphics processing units (GPUs).