Quicksplainer: DeepSeek AI, the Stock Market, and Javons Paradox

A condensed overview of how the new Chinese DeepSeek AI disrupted the American stock market and how it might benefit US investors in the end.

Author

Clodagh Bastian
February 04, 2025

Last week, American AI stocks took a sharp nosedive with the emergence of the Chinese artificial intelligence system DeepSeek. Chipmaker Nvidia’s stock alone fell by 589 BILLION dollars in one day!

DeepSeek disrupted the market because, compared to current American models, it accomplishes complex tasks using less computer power, making it faster and cheaper. It works very efficiently while also being better for the environment. The system is free and open source, making it accessible to anyone. It’s also adaptable across different industries, which makes it popular for businesses needing flexible and scalable AI solutions.

DeepSeek's rapid rise caused concern for AI investors, as its efficient, cost-cutting algorithms threatened to dominate AI infrastructure and reduce overall market demand. However, fears settled as the opinion emerged among investors that Jevons Paradox will cause DeepSeek's efficiencies to fuel even greater demand for AI resources, benefiting the entire industry rather than shrinking it.

So, what is Jevons Paradox?

Jevons Paradox is the idea that making things more efficient can sometimes actually increase resource use. When more efficient technologies emerge, we often assume that the efficiency gain will lead to a drop in total consumption because the resource is used more efficiently and therefore in smaller quantities. Jevons Paradox is the idea that when new technologies make something more efficient, people often end up using more of it instead of less. This happens because the resource becomes cheaper or easier to access, which drives up demand.

In the case of AI, even though systems like DeepSeek are designed to use computing power more efficiently, they’re actually leading to higher energy consumption as more people and industries rely on them. Investors see this as a good thing—they believe that, even if some AI companies struggle, the overall demand for AI will keep growing because of how useful and widely adopted it is.