The Perspective #11: January25

DeepSeek’s effect on the US stock market

Nathan Samuel

In January 2025 a new AI model, DeepSeek-R1, was released to the public. The company behind the model, DeepSeek, was founded by Liang Wenfeng. He is the CEO of the hedge fund, High-flyer, which is in China's top four quant funds. 

DeepSeek is a large language model (LLM) and functions very similarly to OpenAI’s ChatGPT and other LLMs such as Anthropic’s Claude and Google’s Gemini. These models require training so that they can produce responses efficiently and accurately to users’ input.

In stark contrast to ChatGPT, DeepSeek claims to have spent $6 million on developing its latest model. According to Forbes, ChatGPT’s  estimated costs are between $41 million and $78 million. Furthermore, DeepSeek closely rivals and sometimes betters its fellow AI-models in tasks such as advanced mathematics, programming and software engineering. As a result of this cheap, cutting-edge model, there were signs that the USA’s dominance in the AI sector was beginning to waver. DeepSeek also became the most downloaded app in the US Apple App Store that month.

Due to this shock, investors lost significant confidence in the USA’s tech industry. As a whole, in the global tech sector, it is estimated that over $1 trillion was wiped from the stock market. The most notable loss from this crash was for NVIDIA. NVIDIA is one of the world’s leading suppliers of AI hardware such as graphics processing units (GPUs) which are a vital part of developing AI models. Consequently, due to the substantially reduced demand for this hardware, investors sold their assets and securities in NVIDIA. This caused their market capitalisation to fall by an estimated $589 billion, a whopping 16.9% decrease. This is the largest fall in market value for a US company in history.

However, there are censorship concerns with DeepSeek as any prompts regarding human rights violations in China and general critiques of the Chinese government have resulted in DeepSeek refusing to provide an answer. There may also be some information that is biased towards the views of the Chinese government such as views on American presidents. In addition, there are some security concerns as DeepSeek collects some user data, which is stored on Chinese servers, therefore, some worry about the Chinese government potentially accessing their data.

UK Businesses cut jobs at the fastest rate since the Global financial crisis

Sasmeet Satyam

January 2025, saw UK businesses cutting jobs at the fastest rate since the global financial crisis - ahead of rises to national insurance tax ordered by finance minister, Rachel Reeves.

According to the S&P Global Flash UK Purchasing Managers Index (PMI), private sector employment has reduced for the fourth consecutive month and has reached the lowest level since the financial crisis of 2009. The PMI fell marginally from 50.6 to 50.5, however any level below 50 signals a contraction in business activity. 

In addition, the CIPD survey collected data which revealed that slightly more than a third of the 2,000 companies it surveyed intend to cut jobs through layoffs or by hiring fewer employees. The chief executive of CIPD quoted that these were the “most significant downward changes in employer sentiment we’ve seen in the last 10 years, outside of the pandemic”. 

Many Universities across the UK are contributing to the large number of job cuts. It is believed that 70 universities have started “cost saving exercises”, with Coventry University looking to make cuts of £100 million by 2026 and other institutions, including Kent, Sheffield Hallam, Cardiff, Middlesex and many more making large cutbacks.

Through Labor's decision to raise National insurance contributions for employers, the cost of hiring and retaining employees has grown largely. For many businesses, especially those in sectors with low-profit margins, this means they are forced to reduce their labour force to maintain financial stability.

Overall, Rachel Reeves’ budget, while aiming to address the UK’s fiscal deficit, has placed additional financial pressure on businesses, leading to a rise in job cuts as companies attempt to adjust to the higher costs of doing business.