In a dramatic turn of events, shares of major US technology firms plummeted on Monday following the rapid rise of DeepSeek, a low-cost artificial intelligence (AI) chatbot developed by a Chinese firm. The app, launched just last week, has already overtaken competitors like OpenAI’s ChatGPT to become the most downloaded free app in the US, sending shockwaves through the global tech industry.
The sudden success of DeepSeek has raised serious questions about the future of America’s dominance in AI and the viability of the massive investments being made by US tech giants. Companies like Nvidia, Microsoft, and Meta saw their share prices drop significantly, with Nvidia plunging 18% at one point during trading. The ripple effect was felt across Europe as well, with Dutch chipmaker ASML and Siemens Energy seeing sharp declines in their stock values.
A Disruptive Force in AI
DeepSeek’s rise is particularly alarming for US firms because of its cost efficiency. Powered by the open-source DeepSeek-V3 model, the chatbot was reportedly developed for just $6 million—a fraction of the billions spent by rivals like OpenAI. This low-cost approach has the potential to upend the AI industry, challenging the high-cost infrastructure investments being made by American companies.
The app’s performance has already drawn comparisons to OpenAI’s latest models, excelling in tasks like math, coding, and natural language reasoning. Silicon Valley venture capitalist Marc Andreessen described DeepSeek’s emergence as “AI’s Sputnik moment,” referencing the Soviet Union’s 1957 satellite launch that caught the US off-guard during the space race.
Market Reactions and Investor Concerns
The sudden popularity of DeepSeek has left investors scrambling. Fiona Cincotta, a senior market analyst at City Index, noted, “The idea of a low-cost Chinese version hasn’t necessarily been forefront, so it’s taken the market by surprise. If you suddenly get this low-cost AI model, it raises concerns over the profits of rivals, particularly given the amount they’ve already invested in more expensive AI infrastructure.”
Singapore-based technology equity adviser Vey-Sern Ling echoed these concerns, suggesting that DeepSeek could “potentially derail the investment case for the entire AI supply chain.” However, Wall Street banking giant Citi cautioned that while DeepSeek poses a challenge, Chinese firms still face significant hurdles, including restricted access to advanced chips due to US export bans.
DeepSeek’s Origins and Ambitions
Founded in 2023 by Liang Wenfeng, a Hangzhou-based entrepreneur and information engineering graduate, DeepSeek has quickly become a formidable player in the AI space. Liang, who also founded a hedge fund that backed the startup, reportedly amassed a stockpile of Nvidia A100 chips before they were banned from export to China. By pairing these high-end chips with cheaper, lower-end alternatives, Liang’s team was able to develop a cost-effective AI model that rivals the performance of more expensive systems.
In a recent interview, Liang expressed surprise at the market’s reaction to DeepSeek’s pricing strategy. “We didn’t expect pricing to be such a sensitive issue,” he said. “We were simply following our own pace, calculating costs, and setting prices accordingly.”
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Challenges Ahead
Despite its rapid rise, DeepSeek is not without its challenges. On Monday, the company announced it was temporarily limiting new registrations due to “large-scale malicious attacks” on its services. This cyberattack highlights the vulnerabilities faced by emerging tech firms in a highly competitive and politically charged environment.
Moreover, US restrictions on advanced chip exports to China continue to pose a significant barrier for Chinese AI developers. To overcome this, Chinese firms have been forced to innovate, sharing resources and experimenting with new approaches to reduce computing power requirements. This has led to the development of AI models that are not only cheaper but also more efficient, further intensifying competition with US firms.
A New Era in AI Competition
The rise of DeepSeek marks a pivotal moment in the global AI race. As US tech giants grapple with the implications of a low-cost competitor, the industry is being forced to rethink its strategies. With China’s AI capabilities rapidly advancing, the balance of power in the tech world may be shifting, setting the stage for a new era of innovation—and rivalry.
For now, the market remains on edge, watching closely to see how US firms respond to this unexpected challenge. One thing is clear: the AI landscape is changing, and the stakes have never been higher.
