
By Kel Nwanuforo
US markets faced turbulence yesterday after being hit by a technological bolt from the blue. The cause was a new artificial intelligence (AI) tool emanating not from the US – typically considered to be far and away the leader in the space – but from China.
Had you heard of the ‘DeepSeek AI Assistant’ before yesterday? Very few had. This new application, from Chinese firm Hangzhou, only launched in Western countries last week but has already surpassed America’s rival ChatGPT – as well as every other app in existence – to top the most-downloaded chart on Apple’s App Store in both the US and UK. The American AI industry appears to have been completely blindsided by this development.
And here's the kicker. Hangzhou claim their artificial intelligence model was developed at a cost of less than six million US dollars – a drop in the ocean compared with the hundreds of billions their American rivals have been spending on AI.
The worry that hit markets yesterday is therefore that Western tech companies may have overspent on AI – and, even worse, that future profits from these investments may not materialise if an alternative approach can achieve much the same results for less.
These fears led to marked declines in the share prices of some of the big tech names yesterday. Worst affected was microchip designer and maker Nvidia, one of the most valuable companies in the world. Yesterday the firm’s stock price fell by one-sixth, wiping off almost $600 billion in value – the biggest ever one-day loss in worth of any company.
However, yesterday provided a good example of the importance of diversification (the practice of ensuring that investments are spread between a number of different opportunities to reduce reliance on the performance of any one in particular). While Nvidia shares were down by almost 17% yesterday, the US market as a whole declined by less than 1.5% as other companies were less affected.
Still, that was just yesterday. With the big US technology companies being so influential, what is the outlook from here?
It is far too early to conclude that the tables have completely turned on the basis of on one day’s headlines.
US firms arguably retain a huge structural advantage in this space in terms of global market access and growth potential. The tense and deepening geopolitical competition between the West and China is likely to limit the wider market opportunity for Chinese AI products over the longer term.
With rhetoric from political leaders in the West largely hostile or at least wary towards China, how many US or European companies would consider an investment in Chinese AI technology to be a safe bet?
How many would want to give a Chinese AI tool access to their confidential customer data, proprietary product design information, or future product plans?
How many would completely trust a Chinese AI tool to give them unbiased information? The BBC has already noted that the DeepSeek app refuses to answer some difficult questions.
These points of concern mean that there is likely to remain considerable space in the market for Western AI companies to operate going forward.
It is also important to note that Western firms are still acknowledged to be the outright leaders in terms of the actual quality of the technology, even if they are operating at a higher cost point than Hangzhou. Given the restrictions Western nations have put on exporting the most advanced microchips to China, this is an advantage which is likely to persist over time.
Still, America’s big tech firms have had a big shock. The emergence of DeepSeek is likely to spur the sector to investigate how China has apparently been able to achieve 8/10ths or so of the quality of US AI at a fraction of the price. In the long run, yesterday’s news could end up spurring Western firms to become more competitive – and certainly anyone who has bet against American innovation in recent years has been on the losing side.
As is usually the case in trying times, the best course of action is to remain calm and continue to run an investment portfolio which is diversified across a broad range of different assets. This helps to ensure that, no matter what is going on in the markets, some portion of your portfolio should be demonstrating a degree of resilience at any given time.
While the precise blend will depend on your risk profile, at Furnley House we ensure that our investment managers run portfolios diversified by asset class, industry sector, company size, global region, investment style, and more.
And decades and decades of market history show that there is nothing artificial about that intelligence.