## DeepSeek’s Ripple Effect Fades as AI Dominance Race Continues
Nearly a year ago, the artificial intelligence landscape was dramatically shaken by the emergence of DeepSeek, a Chinese AI lab that sent shockwaves through global markets. Stocks of leading Western tech companies experienced significant downturns as investors grappled with the prospect of a new, highly capable AI model from an initially lesser-known Chinese entity challenging the long-held U.S. dominance in the field.
Nvidia, a key player in the AI hardware space, saw its stock plummet by 17%, shedding nearly $600 billion in market capitalization in a single day. Other major tech firms also felt the impact, with Broadcom declining 17% and ASML dropping 7%. This market reaction underscored the prevailing sentiment that the U.S. held a significant lead in advanced AI development.
However, the narrative has evolved considerably in the subsequent eleven months. The companies that experienced sharp declines have not only recovered but have continued on trajectories of robust growth. Nvidia, for instance, became the first company to achieve a $5 trillion valuation in October. Broadcom’s shares saw a remarkable 49% increase throughout 2025, and ASML’s stock rose by 36%.
“The DeepSeek event in January triggered a broad market repricing because it fundamentally altered global perceptions of frontier model cost structures and China’s competitive standing in AI,” observed Haritha Khandabattu, senior director analyst at Gartner. “This development directly impacted the semiconductor and hyperscaler narratives that had previously dominated market discussions.”
Since its initial impactful release, DeepSeek has introduced seven model updates. While these updates have demonstrated incremental improvements, they have not replicated the market-moving shockwaves of its earlier releases. This begs the question: why the muted market response to subsequent developments?
### The Declining “Shock Factor”
Founded in 2023, DeepSeek gained significant attention in late 2024 with the release of V3, an open-source large language model (LLM). The company claimed this model was trained using less powerful chips and at a fraction of the cost compared to models developed by industry giants like OpenAI and Google. This efficiency claim alone began to chip away at established assumptions.
The true disruption, however, came in January 2025 with the release of R1, a reasoning model that achieved benchmarks comparable to, or even exceeding, many of the world’s leading LLMs. This release “truly surprised the market,” according to Alex Platt, senior analyst at D.A. Davidson. “The prevailing narrative at the time positioned China as trailing the U.S. by a significant margin of 9 to 12 months.”
The potential for a model to deliver comparable results to state-of-the-art systems while requiring less computational power raised immediate concerns about the demand for AI infrastructure. This fueled speculation that revenue streams for companies like Nvidia could be negatively impacted. However, Brian Colello, senior equity analyst at Morningstar, noted, “Instead, we observed no slowdown in spending throughout 2025, and we anticipate an acceleration in capital expenditures for 2026 and beyond.”
The nature of DeepSeek’s subsequent releases also played a role. All updates have focused on refining the V3 and R1 models rather than introducing entirely new architectural breakthroughs. Khandabattu characterizes these more recent releases as “credible step changes” in efficiency and capability, but the market has interpreted them as “a continuation and consolidation rather than a new shockwave.”
### Navigating Compute Limitations
A significant factor contributing to DeepSeek’s more measured pace of major releases is likely its access to advanced compute resources. Analysts point to compute as a substantial bottleneck in AI development. “Compute has been a major constraint,” stated Platt. “There’s only so much algorithmic research and architectural ingenuity one can achieve without sufficient processing power.”
Reports from the Financial Times indicated that the company delayed the release of its R2 model, originally slated for May, due to challenges in training it on domestically produced Huawei chips. This delay reportedly stemmed from Chinese authorities encouraging DeepSeek to utilize these processors as part of a broader strategy to reduce reliance on U.S. technology in the face of export controls on advanced Nvidia chips. While DeepSeek has not officially commented on these reports, the situation highlights the geopolitical influences on AI development.
“China’s access to computing power has been constrained over the past couple of years, largely due to U.S. restrictions on chip sales,” explained Chris Miller, author of “Chip War.” “If the goal is to develop cutting-edge models, access to cutting-edge compute is indispensable.” DeepSeek itself has acknowledged “certain limitations when compared to frontier closed-source models” such as Google’s Gemini 3, including compute resources, in a research paper released earlier this month.
Simultaneously, the market has found reassurance in the continued advancements from leading Western AI labs. OpenAI’s unveiling of GPT-5 in August, Anthropic’s release of Claude Opus 4.5, and Google’s launch of Gemini 3 in November have reinforced the perception of ongoing U.S. leadership. “The competition among these providers is intense, characterized by rapid model releases and incremental capability enhancements,” said Gartner Analyst Arun Chandrasekaran. “Consequently, fears of a sudden commoditization shock have subsided.”
Despite the current market stability, there are indications that DeepSeek is preparing for more significant developments. On New Year’s Eve, the company published research detailing a more efficient methodology for AI model development, suggesting a renewed push for innovation. Dan Ives, of Wedbush Securities, anticipates that the market will continue to experience disruptive moments, stating, “We will continue to see some of these moments we’ve witnessed, and next year will bring more. There will be another DeepSeek.”
Original article, Author: Tobias. If you wish to reprint this article, please indicate the source:https://aicnbc.com/15355.html
