AI Power Shift: Silicon Valley’s Reign Tested

This week will be remembered as a wakeup call for the US AI supercycle that ruled supreme last year, propelling US indices to new record highs.

What happened was an almost inevitable recalibration of the AI transition journey. DeepSeek, a Chinese AI platform sent ripples through the high valuations of Silicon Valley AI darlings when it was reported as the most downloaded free app on Apple’s app store.  A brutal sell-off followed, impacting US AI and Tech stocks. Nvidia recorded its worst day, with the sell-off wiping out nearly $ 600 billion of its value.

Panic, rotation out or buying the dip? All these strategies were largely exercised during the sell-off session. Unfortunately, the era of easy AI money is over.

What We Know

AI chiefs Jensen Huang and Sam Altman praised DeepSeek’s R1 model, particularly for its performance comparable to US models at a fraction of the price.

The story gained momentum the following day when Microsoft and OpenAI joined forces to investigate whether OpenAI’s application programming interface had a large amount of data exfiltrated in an unauthorised manner by a group linked to DeepSeek. A White House AI specialist cited substantial evidence that DeepSeek and other Chinese companies had been distilling intellectual property from the US.  

Nvidia has been a prominent victim of this week’s sell-off. Interestingly, DeepSeek uses Nvidia chips, although they are older and inferior to the latest models.

Where We Are Heading

The AI race is rotating with new competitors able to compete at a fraction of the cost. Today’s winners - Meta, Microsoft, Tesla, Amazon, and Alphabet have poured hundreds of billions of dollars to be at the forefront of AI race. The question is how much capex is ultimately needed for AI models training. The next era’s winners may not necessarily be the big spenders but those finding the most effective solutions.

Unrealistic and overstretched US AI valuations experienced a healthy correction. Undoubtably, Chinese AI platforms will be challenged over their security issues and questionable market practices. However, more players will emerge with a ‘Can do more with less capex’ approach. Ultimately, this will lead to more affordable AI adoption which will accelerate the entire process.

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