DeepSeek, Stargate Should Be EU Wake-up Call

European shares sank after DeepSeek's release on investors’ concerns that Western-tech companies overfunded artificial intelligence’s (AI) future.  

The Chinese startup claimed that it only cost about $6 million to develop its advanced AI model DeepSeek V2. Sam Altman's OpenAI spent about $100 million to develop GPT-4 – with about $12 billion invested in OpenAI – for roughly the same results as DeepSeek. 

Source: Docsbot.ai

For the European Union (EU), DeepSeek has exposed the widening AI gap the bloc has with the US and China. The EU has much stricter laws through its AI Act and has comparatively lower levels of investment compared to its US and Chinese counterparts. 

Jeroen Blokland, founder of Netherland-based Blokland Smart Multi-Asset Fund, wrote on X: "’Fortunately,’ Europe holds little ‘over-expense exposed’ AI."

DeepSeek Selloff Hits ASML, Siemens 

Although less exposed, the one-day $1 trillion global selloff hit Europe's tech names. 

Dutch semiconductor supplier ASML (ASML) fell 7% on Monday. Shares of Arm Holdings (ARM), a British semiconductor company involved in "Stargate", slid 10%. Siemens AG SIEGY, a German technology conglomerate, dropped over 20%.

ASML regained some of its losses by the end of the week after delivering record sales and a positive outlook. Siemens also rebounded, but ARM ended lower, unable to fully recover due to AI-related demand shifts.

Five-day performance of ASML and Arm (NY, London sessions), source: TradingView

Meanwhile, the pan-European STOXX 600 Index fell on Monday before climbing 0.4% by the daily close.

DeepSeek Claims AI Model Uses Fewer Advanced Chips

DeepSeek, founded by former hedge fund entrepreneur Liang Wengen, has claimed it built its AI model with fewer advanced chips and less cash. 

It said it only needed 2,000 specialized chips from Nvidia H100 GPUs to train its V3. That compared to about 16,000 or more required to train leading models, according to The New York Times.

However, some have questioned DeepSeek's claim. Scale AI CEO Alexandr Wang said DeepSeek used 50,000 Nvidia H100 GPUs, despite US export restrictions to China. Tech billionaire Elon Musk wrote "obviously" on X in response to Wang's post. 

The US started implementing in 2022, a ban on advanced semiconductor exports to the world's second-largest economy to hinder China's AI advances. 

Nvidia Tanks Despite Doubts About DeepSeek's Claims

Despite doubts about DeepSeek's cost-effective AI, investors punished the US-based GPU manufacturer Nvidia (NVDA). Its shares fell 17% on January 27, losing a record $589 billion in market capitalization.

The crash marked the company’s biggest drop since March 2020 and the largest single-day value loss of any company in history. In September, Nvidia experienced a 9% drop, erasing $279 billion, the greatest loss in US stock market history at the time.

Nvidia selloffs accounted for eight of the ten largest single-day drops in the S&P 500 Index, according to Bloomberg data. The S&P 500 dropped 1.5% on January 27, while the Nasdaq 100 fell nearly 3%. 

Biggest Single-Day Market Cap Loses, Source: Bloomberg 

In a statement on Monday, Nvidia said DeepSeek's model was an "excellent AI advancement," suggesting that the Chinese company did not violate US restrictions limiting advanced US chips in developing its technology. 

Trump Announces $500B AI Investment Plan

A week before DeepSeek's disruption, Trump launched a $500 billion initiative for a network of data centers and computing infrastructure. The project, known as Stargate, aims to accelerate AI development in the US while creating thousands of American jobs.

Distribution of USA Data Centers, Source: Data Center Map 

The new partnership is a joint venture between OpenAI, Oracle (ORCL), SoftBank (SFTBY), and other equity backers. Japanese SoftBank and OpenAI are leading the project. The former will oversee financial responsibility, while the latter will take charge of operations.  

The project will begin with an initial funding deployment of $100 billion. The remaining investment will roll out over the next four years.

Following Trump's announcement, Oracle jumped more than 9% in early market trading on January 22. Nvidia (NVDA) and Broadcom (AVGO), both US AI-linked companies, rose by over 2% in the same period.

European Shares Gain On Trump's Stargate Project

European shares also gained on Trump's Stargate project. French company Schneider Electric (SBGSY), a leading provider of electrical equipment and data center infrastructure, climbed 1.5% on January 22. 

Italian cable maker Prysmian, which acquired US-based Encore Wire in 2024, gained over 2%, an all-time high. 

Prysmian Share Performance 2020-2025, Source: Prysmian 

“These companies are part of the investment baskets focused on electrification, data centers and energy transportation infrastructure," Angelo Meda, head of equities at investment management firm Banor SIM in Milan, said  

They will "benefit from the ongoing trends in AI, electric vehicles and more,” he added. 

Trump Deregulates, Europe Regulates

On January 20, Trump rescinded former President Joe Biden's executive order on AI safety standards and content watermarking. Trump also has pledged to "unlock the liquid gold under our feet and pave the way for rapid approvals of new energy infrastructure."

In comparison, the EU will enforce on February 2 the first stages of the EU AI Act. The EU AI Act includes an initial list of prohibited AI practices, including certain uses of biometric and facial recognition data. 

The penalties for non-compliance with the act range from €7.5 million to €35 million or 1% to 7% of the global annual turnover, depending on the severity of the infringement.

"The EU developed AI Act instead of AI," Velina Tchakarova,  a geopolitical strategist, wrote on X.

DeepSeek, Stargate Should Be EU Wakeup Call

For European policymakers, DeepSeek and Trump's AI push should be a wake-up call. 

"The US and China are racing to dominate artificial intelligence, while Europe remains a cautious spectator," Angel Melguizo, a visiting fellow at the European Council on Foreign Relations, wrote. "European firms, on the other hand, are absent from this technology race."

For the EU to become a serious competitor, it "should invest in sustainable AI across various sectors, including healthcare, education, climate and energy, mobility, and urban planning," he added. 

European Commission leader Ursula von der Leyen has pledged to simplify EU regulations, boost innovation and cut red tape in order to compete with China and the US. However, it is unclear if it is too little too late for Europe to catch up. 

Disclaimer:

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