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Why A.I. Stocks Are Tanking: A Quick Explainer

By Dustin Rowles | News | January 28, 2025 |

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Header Image Source: Getty Images

Even when the opposing party is in office, I’m not someone who cheers for a faltering stock market, even if it’s over concerns about a product—AI—that I’m skeptical of. A struggling market has broader implications for the American economy, the employment rate, and even ad rates, which affect how we operate. That said, this situation is undeniably kind of hilarious.

For the past several years, America has poured billions of dollars into artificial intelligence, hyping it as the next big thing in technology and a transformative force for the economy. The biggest tech players—Alphabet, Meta, Microsoft, etc.—have been locked in a race to develop and integrate the best AI products into their platforms. OpenAI, the company behind ChatGPT, has raised untold billions, with Microsoft alone investing $14 billion.

It’s not just these companies benefiting from AI. Until yesterday, NVIDIA—the company that develops the chips used for AI—was the second-largest stock by market cap, valued at $2.9 trillion. The Biden administration even implemented a policy to hoard these chips and restrict exports to China (a policy the Trump administration is likely to continue). These NVIDIA chips demand massive amounts of energy, which has also driven up the value of energy companies as new data centers have popped up. Entire employment sectors have emerged to support these centers.

I’m no AI expert by any stretch. Like most people, I dabble. I’ve used AI for backend coding tasks and analyzing Google Analytics—math-heavy things that don’t come naturally to me. (And, yes, I also use it for recipes because I’m tired of wading through endless blog copy just to get to the damn ingredients.) I’m skeptical that AI will completely remake American society, though I do believe it will play a role.

But here’s what happened in the last few days: China unveiled the latest version of one of their AI products, DeepSeek, and — somewhat impossibly — it performed as well as ChatGPT or Claude. The kicker? It cost $6 million. Million. Not only did they produce an AI product comparable to or better than ours at one one-thousandth of the cost, but it also uses significantly less energy and hardware.

AI stocks lost $1 trillion in market value yesterday. NVIDIA alone shed $600 billion.

Globally, this might be a positive development. If we can produce the same results for a fraction of the cost and energy use, that’s good for consumers and the environment. But it’s a disaster for American companies that have invested billions in AI. An entire sector of the economy was being built around this technology, and if we suddenly don’t need as many NVIDIA chips, or as much energy, or as much capital investment, it’s bad news for those companies even if it’s good news for everyone else.

The other twist? DeepSeek is open-source, meaning anyone can access the underlying code. It doesn’t make ChatGPT obsolete, but it’s going to be a lot harder to convince consumers to pay $20 a month for it (let alone what companies are spending).

Ultimately, this is a win for consumers and the environment—but a brutal blow for NVIDIA, energy companies, and anyone overinvested in AI. And honestly? I can’t muster much sympathy for them.