AI competition and firm value: Evidence from DeepSeek’s disruption

• DeepSeek’s AI breakthrough has intensified the debate on global AI competition, raising concerns and opportunities for industry players. • U.S. AI firms react positively to the release of DeepSeek R1 model, supporting the view that competition fosters innovation and market growth. • Firms with fewer resources experience stronger short term reaction, while better-resourced firms benefit more in longer windows. • GPU providers face negative market reactions, suggesting that cost-efficient AI models may reduce reliance on large-scale GPU infrastructure, challenging existing manufacturers. DeepSeek’s recent breakthrough has intensified the debate over global AI competition. Using real-time data from Yahoo Finance, I find strong evidence that U.S. AI firms respond positively to the release of the DeepSeek R1 model, contradicting media concerns that disruptive AI competition harms firm value. A heterogeneity analysis reveals that firms with fewer resources experience stronger initial gains but underperform their more resource-rich counterparts over longer event windows. Additionally, GPU providers faced negative market reactions, suggesting that cost-efficient AI models may reduce reliance on large-scale GPU infrastructure. This research provides timely insights into the evolving impact of AI competition on firm valuation and industry dynamics.