DeepSeek’s R1 Shocks Markets, $1 Trillion Wiped Out

In January 2025 DeepSeek released its R1 model and said the model had been trained for roughly $5.6 million. The announcement coincided with nearly $1 trillion in U.S. market value being erased overnight, with Nvidia losing about $600 billion of market capitalization in a single day.

DeepSeek is a China-based AI developer. The company has issued seven model updates since the R1 release; none of those updates produced the same market reaction. DeepSeek has held talks to raise at least $300 million at a valuation near $10 billion and has declined approaches from multiple venture firms and technology companies in China.

Analysts flagged the R1 training cost as a factor prompting investors to reassess the economics of frontier model development. Haritha Khandabattu, a senior director analyst at Gartner, described the release as having ‘changed global beliefs about frontier-model cost curves and China’s competitiveness.’

Several large U.S. AI companies hold valuations far above DeepSeek’s proposed price. One American firm is valued at about $852 billion, and another has been discussed at up to $800 billion. In February 2026 one of those U.S. firms had an annualized revenue run rate near $25 billion.

A different U.S. lab reported its annualized revenue run rate rising from about $9 billion at the end of 2025 to roughly $30 billion by March 2026, attributing the increase mainly to demand for a developer tool called Claude Code. A rival firm’s chief revenue officer has disputed that figure, saying it is inflated by gross-basis accounting for cloud partner revenue; the company that reported the higher number rejects that characterization.

A 2026 AI index shows the top performance ranking has shifted between U.S. and Chinese models multiple times since early 2025, with a U.S. model holding a narrow lead of 2.7% in March 2026.

Investment activity in early 2026 was concentrated: in the first quarter four large private deals accounted for roughly 63% of total capital raised in the sector. Separately, a combined SpaceX-xAI entity has discussed a potential public listing at a valuation some analysts estimate could exceed $1.75 trillion.

DeepSeek’s low training-cost claim and its modest fundraising target stand in contrast to much larger valuations in the U.S. AI market. Market participants have adjusted their price assumptions for AI assets following the R1 announcement and the subsequent company developments.