What is DeepSeek

DeepSeek is a free AI-powered chatbot that works a lot like ChatGPT. It was launched earlier this year and has already caught the attention of tech experts who are testing its abilities. While it can do similar tasks as other chatbots, its performance is still being evaluated.

What makes DeepSeek stand out is the AI model behind it, called R1. This model has 670 billion parameters, making it the largest open-source large language model (LLM) available. One key advantage of DeepSeek is that its R1 model uses less memory compared to other AI models, which helps reduce the cost of performing tasks. The more memory that is used, the more costly it becomes to run! DeepSeek’s efficiency could change the game in terms of cost which has prompted a lot of market kerfuffle.

The reported cost to build DeepSeek is around $6 million (£4.8 million), which is a fraction of the $100 million+ spent on developing models like ChatGPT. Alledgedly, DeepSeek has 2,000 Nvidia H800 chips, which were banned from export to China in 2022, to help create this powerful AI. This raises the question: If they had access to the Nvidia chips and will not have access anymore, can DeepSeek continue to be a strong competitor? Or will recent market drops turn out to be a temporary issue that should be overlooked? It is too soon to make a judgement, yet it has caused panic among investors.

Effect on the Global Stock Market.

DeepSeek’s success challenges the notion that developing advanced AI requires huge budgets and top-of-the-line chips, which has raised doubts about the future of high-performance chips. Many analysts believe that powerful AI can be made with limited resources and high valuations of technology companies should be corrected. With this note, OpenAI (company behind ChatGPT), undoubtedly one of the strongest players in AI, which is worth $157 billion, is facing pressure to prove that it can keep leading innovation and justify its massive spending without seeing big returns.

Results from Deepseek shook financial markets on January 27^th 2025 causing the Nasdaq index, which is mainly comprised of tech stocks, to fall by 3%, particularly impacting companies like chip makers and data centers worldwide. Nvidia took a big hit, with its stock price dropping 17%. Once the most valuable company in the world by market value, Nvidia’s worth fell from $3.5 trillion to $2.9 trillion, pushing it down to third place behind Apple and Microsoft. 

How does it Affect the Average Investor

In times of market volatility and short-term fluctuations, it’s essential for investors to maintain a disciplined, long-term approach to their investments. Revolutionary companies, particularly in sectors like AI, may experience market swings due to the nature of the business which involved huge research and development. While these fluctuations can cause short-term uncertainty, they are often temporary, and the fundamentals of these businesses remain strong in the long run. 

It is obvious that AI is here to stay, and actually what Deepseek has produced is only going to be good for AI evolvement.  As with most industries, the more mature the industry becomes, the more price competitive and quicker things will become!

Yesterday Nvadia bounced back nearly 4% in a day, showing the importance of staying focused on long-term goals rather than reacting to short-term noise.

Trying to time the market is for fools. It is guaranteed that after any correction we will see “all time highs again.” After bear markets always come bull markets! For example (and one of many), in August 2024, when Japan raised interest rates for the first time in a decade, the market took a sharp dip with investors paniking but rebounded within just 15 days. This pattern of short-term dips followed by recoveries reinforces the importance of time in the market rather than trying to predict short-term movements.

Historically, it has been seen long-term investing consistently wins. By staying invested and adhering to a diversified strategy across different geographies, sectors, and sizes, investors can navigate through volatility, reduce risk, and stay on track to meet their financial goals.

Remember, patience and a focus on the fundamentals are key to unlocking the benefits of sustained growth.