DeepSeek’s new AI model fails to spark market rally as China’s AI race intensifies

Beijing: Market reaction to DeepSeek’s preview of its long‑awaited next‑generation artificial intelligence model has so far been subdued, sharply contrasting with the Chinese startup’s outsized global breakthrough last year following the launch of its low‑cost AI models. The release and overseas reception of DeepSeek‑V3 and R1 — which the Hangzhou‑based company said were trained using only a fraction of the computing power employed by U.S. rivals — triggered a global tech selloff, as investors began questioning the rationale behind massive spending on AI infrastructure. That moment was widely viewed by analysts as a “black swan” event, forcing a sudden repricing of assumptions around costs, competition, and China’s capacity to innovate under U.S. chip restrictions. However, the muted response to DeepSeek‑V4, launched on Friday, underscores how rapidly expectations have shifted. Markets and industries have become accustomed to low‑cost, highly efficient AI models developed under computing constraints, diminishing the element of surprise. “This announcement followed a rather predictable path,” said Lian Jye Su, chief analyst at Omdia, noting that advances in model architectures and efficiency have since been widely explored across both industry and academia. Benchmark data support that view. According to Artificial Analysis, DeepSeek‑V4 Pro demonstrates notable improvements over earlier versions, but ranks among leading open‑weight models rather than clearly outperforming rivals. Competitors such as Kimi and Qwen have significantly narrowed the gap. That marks a contrast with last year, when DeepSeek appeared to leap ahead of domestic peers, driving rapid adoption in China and amplifying its global influence. Analysts say the earlier market shock was driven by a convergence of factors: elevated valuations of U.S. technology firms, assumptions of continued dominance by a handful of players, and the sudden emergence of a relatively unknown Chinese startup delivering unexpectedly strong results. Those conditions, however, no longer apply. “The expectation that new players will emerge is now baked into valuations,” Su said, adding that markets have become more realistic about both the potential and the limitations of artificial intelligence. Meanwhile, competition within China has intensified, with multiple firms releasing increasingly capable models, eroding DeepSeek’s once‑significant lead. On Monday, stock markets in South Korea and Taiwan reached new highs, buoyed by broad optimism around AI‑related equities. Alfredo Montufar‑Helu, managing director at Ankura China Advisors, said the importance of V4 lies less in its immediate market impact and more in the broader U.S.–China technology rivalry. He highlighted DeepSeek’s efforts to optimize V4 for Huawei chips, as tighter U.S. export controls aim to restrict China’s access to advanced American semiconductors critical to AI development. “The ‘wow factor’ was last year — that’s already priced in,” he said. “What matters now is whether China can continue advancing AI development, potentially using its own chips. The geopolitical implications would be significant.”