DeepSeek AI's breakout unnerves Korean retail investors

The world of artificial intelligence has been rocked by the sudden rise of DeepSeek, a Chinese AI startup whose groundbreaking technology and low-cost innovations have sent shockwaves through global markets.

While its technology has wowed the public, the financial fallout is leaving Korean retail investors, who hold substantial stakes in US AI-related stocks like Nvidia, in a state of panic.

The new, low-cost challenger to Big AI

DeepSeek’s conversational AI app, likened to OpenAI’s ChatGPT, became an overnight success, quickly topping download charts on the Apple App Store and Google Play Store across countries like the US and South Korea. By Monday, the surge in user demand was so overwhelming that DeepSeek had to warn of delays in new registrations due to server overload.

The buzz surrounding DeepSeek centers on its proprietary AI model, “R1”, which has proven to be not only highly capable but also extraordinarily efficient. In one benchmark test -- the 2024 US Math Olympiad -- R1 achieved an accuracy rate of 79.8 percent, narrowly outperforming OpenAI’s o1 model at 79.2 percent.

What sets DeepSeek apart is its cost structure. DeepSeek claims to have developed the model at a fraction of the expense typically required for such advanced AI systems, a development that threatens to disrupt the economics of the AI industry.

Korean investors feel the heat

While DeepSeek’s technological advancements have garnered applause, the financial implications have triggered widespread concern, particularly among numerous South Korean retail investors deeply invested in US tech stocks. On Monday, Nvidia, the second-most popular stock among Korean investors after Tesla, saw its shares plummet by 16.89 percent. This drop wiped out $612.7 billion in market value, marking the largest single-day loss in US stock market history.

Korean investors collectively hold over $12.6 billion worth of Nvidia shares, according to the Korea Securities Depository. The abrupt stock downturn has sparked panic in online forums frequented by Korean investors. Posts expressing regret and anxiety have flooded these platforms, with comments like, “I’ve always been uneasy about Nvidia's sky-high prices” and “DeepSeek’s tech may be the beginning of Nvidia's monopoly collapse.”

Some users speculated about the rise of Chinese competitors, saying, “It seems we’ll need to go to China to understand the future of AI.”

However, not everyone is bearish. Some investors remain optimistic, pointing out that DeepSeek still relies on Nvidia chips to power its systems. “This could be an opportunity for Nvidia to bounce back if DeepSeek encounters operational issues,” one commenter wrote.