Tech companies surprised by China’s AI news, stocks drop

Tech companies across America were surprised this week by a Chinese announcement about an artificial intelligence advance, and industry-wide, stocks were off a couple of percentage points.

One report described the industry as “freaking out” and another said the stocks “crashed,” although the industry itself was off only a modest amount and even individual stocks in companies that were impacted directly by the development were off only about 10% or thereabouts.

The word was that Chinese artificial intelligence firm DeepSeek had “leapfrogged” U.S. performance for AI.

The Nasdaq Composite of tech companies was down 3.4% and the Dow was off 180 points.

It was DeepSeek, launched only a week ago, that announced it had succeeded in building an AI model on a “shoestring budget.”

DeepSeek reported of its language model to generate human-like conversation.

Reports purport that the model already has been tested against America’s software giants like ChatGPT, and in some cases outperformed them.

Experts say the development is a “wake-up” to American tech operations.

The news comes following an announcement from President Donald Trump of a $500 billion investment in a new AI idea called “Stargate,” that would include OpenAI and ChatGPT.

The news comes after the now-gone Joe Biden administration had tried to hamper China’s AI industry.

The market already had exhibited fluctuations in recent days as investors assess the impact of President Trump’s economic agenda, which focuses on American first and buying American.

It includes plans for tax changes, tariffs, imports and exports and much more.

NBC News reported also hit with stock drops of 2% to 4% were various tech giants including Microsoft and Google parent Alphabet.

Reuters reported DeepSeek claimed its programming uses cheaper computer chips and less data. Interest in the claims immediately pushed its product past ChaptGPT as the top-rated free application on Apple’s App Store.

In the report, Adam Sarhan, CEO of 50 Park Investments, said the question is whether the Chinese operation can disrupt other plans.

“If it is something that can, then we have a situation where all these AI stocks and the market as a whole will be re-priced,” he said.

Power companies, which are expecting a surge in demand from the energy-intensive data center, also were seeing headwinds.