WSJ What’s News: Detailed Summary of "Tech Stocks Tumble Sparked by China’s DeepSeek"

Release Date: January 27, 2025
Host: Alex Osmaleh, The Wall Street Journal

1. Introduction: Significant Market Downturn Triggered by AI Developments

In the January 27, 2025 episode of WSJ What’s News, host Alex Osaleh delves into a dramatic shift in the U.S. stock market, highlighting a monumental loss exceeding a trillion dollars primarily driven by a plunge in tech stocks. The catalyst? The unveiling of a cost-effective artificial intelligence model by the Chinese company DeepSeek.

Alex Osaleh [00:33]: "More than a trillion dollars have been erased from the US Stock market. Tech stocks dropped after China's Deep Seek released a cheaper AI model. Plus, is this the correction in AI stocks investors were expecting?"

2. The DeepSeek Revelation: A Game-Changer in AI Technology

DeepSeek's recent announcement has sent shockwaves through the tech sector. The company introduced an AI model developed at a fraction of the usual cost—approximately $5.5 million—contrasting sharply with the $100 million to $1 billion investments typically required for similar models by industry giants like Anthropic.

Alex Osaleh [00:57]: "...an artificial intelligence model from the Chinese company Deepseek has sparked a deep freakout among investors. Nvidia stock tumbled nearly 17%, wiping out about $593 billion from the company's market cap."

This breakthrough has not only affected AI-focused firms but has also reverberated across companies involved in AI infrastructure, including Oracle, Super Microcomputer, and TSMC. The broader market impact saw major U.S. stock indexes decline, with the Nasdaq falling by approximately 3%, and the S&P 500 decreasing by around 1.5%, although the Dow Jones Industrial Average edged up by nearly 0.7%.

3. Expert Insight: Asa Fitch on DeepSeek’s Technological Prowess

To unpack the implications of DeepSeek's advancements, the podcast features insights from Asa Fitch, a semiconductor analyst at The Wall Street Journal.

Asa Fitch [02:45]: "...Deepseek has been around for a couple of years, driven by an entrepreneur in China who's actually a hedge fund guy who does quant investing in China."

Fitch elaborates on what sets DeepSeek apart, particularly their ability to develop a sophisticated AI model with significantly reduced computational resources. Unlike giants like OpenAI, which have invested billions in GPUs and advanced chips, DeepSeek achieved comparable performance with less intensive hardware.

Asa Fitch [03:23]: "The interesting thing about this model really is how little it needed in terms of computing resources to do what it did."

Additionally, DeepSeek's open-source approach has garnered credibility and interest, allowing the broader tech community to examine and validate their methodologies.

Asa Fitch [04:46]: "It's not one of these Closed source things where everything's hidden... People can kind of see what they did. They can check their work and they can see that they used all these techniques to do what they did."

4. Market Reactions and Broader Economic Implications

Following the in-depth analysis with Fitch, Alex Osaleh engages with David Uberti, a markets reporter, to explore the broader ramifications of DeepSeek's announcement on the U.S. economy and stock market.

David Uberti [07:20]: "The market has been riding so high over the last year or two, in large part because of a lot of this AI hype."

Uberti explains that the surge in AI enthusiasm inflated stock valuations, particularly within the tech sector. DeepSeek's cost-effective AI model introduces doubts about the sustainability and real value of AI investments, leading to a market correction.

David Uberti [07:20]: "...whether the market has overvalued some of these stocks. If there is in fact a cheaper, more efficient way to do some of these things that AI models have been doing."

The ripple effect extends beyond direct AI companies to ancillary sectors like semiconductor manufacturing, data centers, and even energy suppliers. This interconnectedness underscores AI's pervasive influence across the economy.

David Uberti [08:35]: "It has really gone to show how wide reaching AI has been as a theme within Wall Street's sort of investment thesis."

Furthermore, Uberti highlights the potential long-term impacts, suggesting that if the market continues its downward trajectory, there could be a fundamental reassessment of how AI-related stocks are valued. The current sell-off has also prompted a flight to safer investments, evidenced by a rally in government debt treasuries.

5. Future Outlook: Anticipating Market Movements and Earnings Reports

As the episode progresses, Uberti shares his perspective on the uncertain future of the markets amid this correction. With major companies set to report earnings in the coming weeks, these reports will be pivotal in determining whether the current downturn is a temporary adjustment or indicative of a more profound market realignment.

David Uberti [09:15]: "Major companies are reporting earnings over the coming weeks. They will give us some insight into that and sort of answer these questions from the C suite for sure."

The potential reevaluation of stock valuations could lead to a broader shift in investment strategies on Wall Street, moving away from the heavily AI-centric portfolios that have dominated recent years.

6. Additional News Highlights

Beyond the primary focus on DeepSeek and market fluctuations, the episode briefly touches upon other significant news:

• Trump Administration's Impact on Tech: WSJ Global Tech Editor Jason Dean discusses how the new administration's policies favoring cryptocurrency and AI, alongside a more lenient stance on antitrust proceedings, could reshape Silicon Valley's landscape.

  Jason Dean [10:31]: "He's been very vocal about embracing policies that favor cryptocurrency and artificial intelligence."

• Justice Department Review: A top prosecutor has initiated an internal review of the Department of Justice’s decision to charge hundreds of January 6th defendants with felony obstruction offenses, following President Trump's recent pardons.

• Conflict in Congo: A Rwanda-backed rebel group has entered the city of Goma in the Democratic Republic of Congo, escalating a long-standing conflict and challenging the Trump administration's foreign policy commitments.

7. Conclusion

The episode encapsulates a critical moment in the tech industry, where advancements from a relatively unknown Chinese AI firm have instigated significant market turbulence. Through expert interviews and comprehensive analysis, WSJ What’s News provides listeners with an in-depth understanding of the immediate impacts and the potential long-term consequences for the U.S. economy and global tech landscape.

Produced by Pierre Bienname and Anthony Bansi, with supervising producer Michael Kosmides.

Notable Quotes:

• Alex Osaleh [00:33]: "More than a trillion dollars have been erased from the US Stock market."

• Asa Fitch [03:23]: "The interesting thing about this model really is how little it needed in terms of computing resources to do what it did."

• David Uberti [07:20]: "The market has been riding so high over the last year or two, in large part because of a lot of this AI hype."

• David Uberti [09:15]: "Major companies are reporting earnings over the coming weeks."