China-US AI War Heats Up: DeepSeek’s Rise Rattles Nvidia, US Tech Stocks

DeepSeek, Nvidia, China, and the AI Uproar

On Monday, January 27, the US equity markets faced turbulence following news that a Chinese AI platform, DeepSeek, had overtaken ChatGPT in Apple’s App Store download rankings.

Nvidia (NVDA) tumbled 16.97% on January 27 as investors considered the sustainability of AI-driven spending and stock valuations. DeepSeek, known for its low-cost AI model, fueled concerns about competition. A partial recovery on January 28 was short-lived, as Nvidia slid a further 4.10% on January 29, leaving the stock down 13.27% for the week.

The US President responded to the news and the January 27 market sell-off, stating:

“The release of DeepSeek, AI from a Chinese company should be a wakeup call for our industries that we need to be laser-focused on competing to win.”

Brian Tycangco, editor and analyst at Stansberry Research, weighed in on the DeepSeek frenzy, stating,

“It’s rather weird that the makers of DeepSeek would admit they use Nvidia GPUs. They know it’s only going to lead to tighter export restrictions. That’s unless they weren’t using Nvidia GPUs in the first place and want to see Trump further damage NVDA’s prospects. Just a thought. But odds are they will still be dependent on Nvidia.”

Tycangco reacted to reports of Trump administration officials considering further restrictions on Nvidia sales to China. The development signals a potential shift in Trump’s stance on DeepSeek and the broader market impact.

China reportedly accounted for over 15% of Nvidia’s revenues, according to its most recent quarterly numbers. Tighter restrictions may impact Nvidia’s top line, stock price, and the broader US tech sector.

From Trade War to AI War

On January 29, US Commerce Secretary Howard Lutnick remarked on DeepSeek using Nvidia’s chips during his confirmation hearing, saying,

“Nvidia’s chips, which they bought tons of, and they found their ways around, drive their DeepSeek model. It’s got to end.”

Meanwhile, OpenAI, the maker of ChatGPT, reportedly raised concerns about competitors, including China’s AI developers, using its platform to accelerate AI advancements. AI and crypto Czar David Sacks commented:

“There’s substantial evidence that what DeepSeek did here is they distilled the knowledge out of OpenAI’s models.”

US rhetoric points to a potential AI war unfolding, adding to uncertainties over US tariffs on Chinese goods. Last week, President Trump eased fears of a US-China trade war, saying he would rather avoid tariffs after constructive talks with China’s Premier Xi Jinping.

However, tighter tech-related export restrictions could sour US-China relations. Beijing may retaliate by targeting US firms that manufacture goods in China.

Despite the risks, the US President may face increasing pressure to address China’s access to US AI-related products. Experts are reportedly warning against using China’s AI tools, such as DeepSeek, stating the Chinese state may exploit users’ data.

Notably, the US Navy reportedly banned DeepSeek on January 24, citing security and ethical concerns.

As the US administration considers rolling out tariffs on February 1, a response to DeepSeek and its use of US tech could impact the Chinese markets after the Lunar New Year holidays.

China’s Tech Stocks Outperform as AI War Heats Up

While Nvidia faced a bruising sell-off, US-listed Alibaba Group Holdings (BABA) advanced by 0.72% on January 29, bucking the broader US tech sector pullback. Over the past week, Alibaba has risen 8.50%.

Hong Kong-listed Baidu (9888) surged 7.66% in the week, helping lift the Hong Kong’s Hang Seng Index by 0.79% for the week. Brian Tycangco has highlighted Baidu Inc. (9888.HK) as a key player in China’s AI and tech space.

Meanwhile, the CSI 300 closed the week down 0.41% as tariff uncertainties weighed on investor sentiment.

With Chinese markets closed for the Lunar New Year, Hong Kong’s stock exchange will reopen on Monday, February 3, while Mainland China’s markets will resume trading on Wednesday, February 5.

Explore expert forecasts on US-China trade and further insights into China’s economy, the Hang Seng Index, and global markets here.