China’s DeepSeek app, introduced just last week, has quickly surpassed competitors like OpenAI’s ChatGPT to become the top free app download in the US. The rise of DeepSeek has sent shockwaves through the market, with shares of major US tech companies taking a hit.
Nvidia, Microsoft, and Meta all experienced significant declines in their stock prices on Monday, reflecting the growing concerns among investors. DeepSeek also revealed on Monday that it would temporarily limit new user registrations due to “widespread malicious attacks” targeting its platform.
What sets DeepSeek apart is its development cost. Reports indicate that the chatbot was created for a fraction of what competitors have spent, sparking debates about the future of AI leadership in the US and the scale of investments required from American companies moving forward.
DeepSeek-V3 model
Meanwhile, OpenAI and other firms recently announced a collective commitment to invest $500 billion in building AI infrastructure in the US. In one of his early announcements after returning to office, former President Donald Trump described the initiative as the largest AI infrastructure project in history, aimed at keeping the US at the forefront of technology.
DeepSeek operates using the open-source DeepSeek-V3 model, which developers claim was trained for just $6 million—a stark contrast to the billions invested by others. However, these figures have been met with scepticism from some in the AI field. The developers credit existing technology and open-source code, which allows free use, modification, and distribution, as key factors in reducing costs.
The app’s emergence comes as the US restricts the export of advanced chip technology to China, pushing Chinese developers to explore alternative methods. By sharing resources and experimenting with new approaches, they’ve created AI models that require less computing power and lower costs, potentially reshaping the industry.
Since the launch of DeepSeek-R1 earlier this month, the company has claimed its model performs on par with OpenAI’s latest offerings in tasks like math, coding, and language reasoning. Marc Andreessen, a Silicon Valley venture capitalist and advisor to Trump, referred to DeepSeek-R1 as “AI’s Sputnik moment,” likening its impact to the Soviet Union’s surprise 1957 satellite launch.
Markets caught off guard
DeepSeek’s sudden popularity has rattled financial markets. Nvidia’s stock dropped nearly 17%, Broadcom fell more than 17%, and other tech giants like Microsoft and Alphabet also saw declines. In Europe, ASML, a Dutch chip equipment maker, fell over 7%, while Siemens Energy saw its shares plunge by 20%.
Analysts note that DeepSeek’s low-cost approach has caught the market off guard. Fiona Cincotta, a senior market analyst at City Index, told the BBC that it raises concerns about rivals’ profitability, especially given their massive spending on expensive AI infrastructure.
Vey-Sern Ling, a technology equity advisor based in Singapore, warned that this could disrupt the entire AI investment landscape. However, Citi analysts pointed out that restricted access to advanced chips could slow down China’s progress while US firms maintain an edge with superior hardware availability.
DeepSeek also confirmed cyberattacks targeted it, stating that new registrations would be temporarily paused to maintain stable service for existing users.
The company was founded in 2023 by Liang Wenfeng, an information and electronic engineering graduate from Hangzhou, China. Liang, who also founded the hedge fund backing DeepSeek, reportedly stockpiled Nvidia A100 chips before they were banned for export to China. This substantial inventory—estimated at around 50,000 units—helped launch DeepSeek by combining these chips with more affordable, importable alternatives.
Liang recently attended a meeting with industry leaders and Chinese Premier Li Qiang. In an interview last year, Liang expressed surprise at the focus on pricing, explaining that the company calculated costs and set prices accordingly without expecting such significant attention.
