President Donald Trump’s artificial intelligence and crypto czar warned American investors not to panic after the remarkable development of a Chinese startup’s AI chatbot spooked global markets Monday.
Venture capital titan David Sacks, however, warned American tech companies against complacency, writing in a post on X that the day’s events show how competitive the race to develop artificial intelligence will be over the next few years.
The market bloodbath began after Chinese firm DeepSeek released R1, a sophisticated AI model that rivals its Silicon Valley counterparts for a fraction of the cost. It quickly topped Apple’s App Store charts, threatening the dominance of American companies like Open AI, the creator of ChatGPT, just days after Trump announced a $500 billion AI infrastructure project.
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“DeepSeek R1 shows that the AI race will be very competitive,” Sacks wrote, while lauding Trump’s actions to bolster the American tech industry.
“I’m confident in the U.S. But we can’t be complacent,” Sacks added.
Concerns that the artificial intelligence bubble could pop led to a market sell-off that dragged the Nasdaq Composite down more than 3 percent by market close on Monday, the biggest drop in six weeks, as investors dumped $1 trillion in tech stocks.
Chipmaker and recent market darling Nvidia suffered its worst day since March 2020, with a nearly $600 billion loss in market value. European and Japanese chip stocks were hit by similar losses.
Despite its devastating loss, Nvidia praised DeepSeek’s R1 as “an excellent AI advancement.” The Chinese model requires less computing power than its American-made rivals after researchers were forced to work around U.S. sanctions that disrupted their access to more advanced semiconductor chips.
R1 is also open-source, meaning anyone can view, use, and modify its source code.
Marc Andreessen, another tech billionaire advising Trump, called the release of R1 “AI’s Sputnik moment,” referring to the Soviet Union’s surprise launch of a satellite in 1957 that kicked off the space race.
OpenAI CEO Sam Altman, for his part, praised the DeepSeek release as “impressive” and said he welcomed a new competitor—though he also promised to deliver “much better models” than his new Chinese rival.
“The world is going to want to use a LOT of AI, and really be quite amazed by the next gen models coming,” he wrote on X.
But despite the market rout, analysts seemed less worried about the long-term implications of China’s newest AI player.
Among the optimists was Sacks, a venture capitalist and longtime friend of Elon Musk, who dug into his deep pockets to support Trump’s campaign last year. He was rewarded handsomely for his loyalty with an advisory position on the industry—as well as an appearance by Trump on Sacks’ All-In podcast.
Trump tasked Sacks last month with shaping AI and cryptocurrency policy to make the U.S. “the clear global leader in both areas.”
Prominent analyst Gene Munster of Deepwater Asset Management also saw Monday’s wipeout as an “overreaction” to DeepSeek’s success.
“Despite any architectural breakthrough, the need for AI infrastructure is continuing at a higher rate than most investors anticipate,” he said on X. “Most likely, the DeepSeek ‘breakthrough’ represents some step forward in chip architecture.”
Munster said the market will likely remain on edge until Wednesday afternoon when Microsoft, Meta, and Tesla report their earnings.
Financial analyst Tom Lee also called the market rally “an overreaction” on CNBC—while adding that it might be a chance to grab more Nvidia stock at cheaper prices.
“Nvidia’s decline is the worst since March 2020, and we know that ended up being a huge opportunity for investors,” he told CNBC’s Closing Bell. “It’s not a fun day, but I’d be looking at this as an opportunity.”
CNBC’s Jim Cramer, meanwhile, advised investors to wait and see.
“These DeepSeek revelations happened so quickly that many analysts didn’t even have time to assess the situation,” he said. “We got to wait, we got to wait until we know more, rather than taking kneejerk action and pretending that we know the answers.”
But the market movements also appeared to align with earlier statements by JPMorgan Chase CEO Jamie Dimon and Goldman Sachs CEO David Solomon that the U.S. stock market was inflated.
“Asset prices are kind of inflated, by any measure. They are in the top 10 percent or 15 percent,” Dimon said at the World Economic Forum, noting that he was cautious because of risks from deficit spending, inflation, and geopolitical volatility.
Solomon also said market valuations were high, though he previously argued that an inflated market could simply be viewed as enthusiasm over American AI dominance and the return of Trump.
“It’s hard to dispute the fact that equity multiples are high,” he said. “Markets look forward, and we are coming off of a very, very tough regulatory environment across all industries.”
