DeepSeek's R1 Missile Sinks Tech Markets

TECH IN THE NEWS

NATO Drawdown — Pres. Trump plans to reduce US troops in Europe by 20% (20,000 troops) and seeks financial contribution for remaining forces, as news leaks of an alleged Russia-Ukraine peace plan that is denied by the Ukrainian president.

Immigration Tech — ICE and Immigration Services have reportedly spent $7.8B on surveillance tech from 263 companies since 2020, including ankle monitors and phone hacking tools.

Lab Leak Theory — A CIA assessment suggests COVID-19 "more likely" originated from a NIH-funded joint US/China research lab in Wuhan, though with "low confidence" in the findings.

AI Market Shake-up — R1, a highly efficient AI model from Chinese startup DeepSeek becomes the top iPhone app; Nvidia stock plunges 15% leading a wider AI selloff over fears of reduced chip demand.

TikTok Takeover — An Oracle/Microsoft led bids for TikTok with a proposed US government stake has been made. Trump denies reports of involvement in the deal.

Change Hack — On Friday we learned that more than 190 Million Americans were affected by a data breach at Change Healthcare in 2024.

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COMPANIES TO WATCH

[Open Deal] Retro Biosciences — The San Francisco aging-focused biotech startup is raising a $1B Series A after announcing an OpenAI drug development partnership. It received an $180M seed from Sam Altman, who plans to re-up.

Humanity Protocol — The ‘World’ rival decentralized ID project Humanity Protocol raised $20M at a $1.1B valuation co-led by Pantera and Jump Crypto.

Manas AI — LinkedIn co-founder Reid Hoffman has raised $24.6M for a new AI cancer research startup, in partnership with Siddartha Mukherjee, the author of “The Emperor of All Maladies”.

THE HOTTEST THING IN TECH
DeepSeek’s R1 Missile Sinks Tech Markets 

The tech world and markets are in turmoil. DeepSeek, a Chinese AI startup launched by a hedge fund, has released the R1 mode that challenges the performance of industry leading US AI models at a fraction of the cost. Its mobile app went viral and topped app store charts, knocking ChatGPT off the #1 spot. More importantly, it send ripples of fear through the WEF at Davos and led major tech stocks to sell off sharply, including a $600 billion one day market cap loss to Nvidia. This is a potential epoch shift and has serious ramifications for the tech sector, markets, and national security. 

What is DeepSeek?

DeepSeek is owned by a hedge fund managed by the Hong Kong company High-Flyer Capital Management. R1 reportedly cost a mere $6 million to train, contrasting sharply with the billions spent by US tech giants. It reportedly achieved its low costs by focusing on ‘Reinforcement learning’ and other efficient training methods, utilizing innovative techniques to reduce computational needs, using lower-end hardware and emphasizing hardware efficiency. They also leveraged open-source models such as Meta's Llama, and bought input/output token data from the secondary market to build their models, which saved time and resources. Rumors suggest that R2 is already on the way, and yesterday Deepseek dropped Janus, a free and open source image generation model that rivals DALL-E 3 and Stable Diffusion.

Market Reaction

The market's reaction has been dramatic. Nvidia's stock plummeted by 15% in one day, with other tech stocks also taking a hit. Investors are clearly finally questioning the narrative that "bigger is smarter"- i.e. that massive capital expenditure (capex) is the primary driver of AI success. If DeepSeek really proves that high-quality data and model architecture can achieve similar results at lower costs, this significantly affects everything from foundational models and hardware like semiconductors through to real estate and energy for data centers.

Infrastructure Dominoes

More efficient AI models directly threaten semiconductor companies, particularly Nvidia, as large-scale GPU clusters may not be as critical as previously thought. This could lead to decreased demand for high-end GPUs, impacting chip manufacturers and infrastructure providers expecting increased demand for data centers. It also is bad news for Meta, which has announced a massive spend on an AI data centre covering an area the size of Manhattan. Also the fact that R1 is a genuinely open-source and open weight model, (unlike Meta’s LLama, which is not open weight and is not even truly open-source by most definitions) spells more bad news for Meta.

Market Dominoes

The uncertainty around DeepSeek’s impact has increased market volatility with tech stocks particularly vulnerable. Investors and VCs in the US were already becoming increasingly worried about the return (or lack of it) on large AI investments as early as last year. Valuations are already far out of sync with revenues, and this development adds significant fuel to the fire. Hedge funds were already hesitant to make big bets on the US AI market before DeepSeek per a Goldman Sachs note from Friday, but Futures and tech stocks slumped Monday as hedge funds continued to sell stocks. 

Overbuild Risk Pullback

This is likely bad news for projects like the $500B “Stargate” deal between Oracle, Softbank and OpenAI to build data centres in the US announced last week. Perhaps Elon Musk’s claims about the lack of project funds have more validity than many thought. This selloff is also affecting sectors adjacent to the AI and tech industries including those in infrastructure like energy companies that would benefit from AI data centres. The AI boom revitalized the nuclear energy industry over 2024, but R1 begs the question whether AI really needs that much hardware, and could stall the progress. This is also bad news for real estate speculators or investors banking on an AI boom to revitalise the commercial market.

Competition And National Security

It’s worth noting that R1 suffered an outage due to a malicious DDoS attack. A Reddit thread claiming this was done by the US in retaliation for the impact it caused on the stock market today hints at some of the deeper currents that could be at play behind the scenes. Unsurprisingly the Reddit thread was promptly removed. R1's emergence is bound to intensify competition between the US and China for AI leadership, potentially leading to more tech restrictions and supply chain disruptions. 

However, the point is R1 may be more evidence that such measures are ultimately doomed to fail, as China is finding innovative workarounds as well as becoming more self-sufficient by the day. As Gary Marcus puts it, "The moves around LLMs are simply too well understood for anyone to get a decisive lead there anymore...The race to AGI will be won not by the country with the most chips but by the one that best fosters true innovation." In other words, the value is not in the model itself, but in true innovation that builds upon it. The same applies for innovative small companies and startups.

What Does R1 Mean Moving Forward?

DeepSeek's emergence is another question over the viability of current AI business models. The idea that massive investments are the only path to AI innovation is challenged, opening doors for smaller, more agile players. The focus may shift to efficiency, algorithms, data quality and user experience. For investors the focus may also be shifting to companies emphasizing innovation, efficiency, and productization, not just size of foundational models. The open-source nature of DeepSeek's models may ultimately democratize AI development, lowering barriers for startups.

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BUZZY TOOLS
Buzzy Tech Tools To Watch & Use

Grok 3 — Coming this week, already live for some users.

xAI/ElevenLabs — Grok Voice models to be powered by ElevenLabs.

DeepSeek — R2 next week? + new Janus free image model beats DALL-E 3.

Kimi — Another free, unlimited usage China app beats 4o, 3.5 Sonnet?

SEALSQ — ‘World’s first’ secure hardware against quantum threats launched.

DEEP TECH
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Smart Walls — 3D-printed panels improve air quality, absorb moisture.

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SPACE_RACE

—SpaceX_Installing chopsticks to 2nd Starbase Starship Launch Tower

—Array Labs, Raytheon, Umbra_Partner on 3D Earth imaging and mapping

—Nayuta Space_Chinese startup secures early funding for fully reusable rocket

[NEW FEATURE] CRYPTO WATCH

Crypto Banking — The now Republican-led SEC has repealed the SAB121 accounting rule, removing restrictions on banks offering crypto custody services.

NFT, Memecoins — New Trump Crypto czar David Sacks has said that NFTs and memecoins are considered collectibles, not securities

Blockchain.Gov — Elon Musk is exploring using blockchain for federal spending tracking and data management at the new Department of Government Efficiency.

Venice VVV Token — Erik Voorhees's "private, censorship-resistant" decentralized AI platform's new token dropped Monday on the Base blockchain.

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