Chinese AI App DeepSeek Shakes Global Tech Market, Nvidia Loses Billions

HANGZHOU, China — A Chinese artificial intelligence (AI) chatbot, DeepSeek, has sent shockwaves through global tech markets, causing U.S. tech giant Nvidia to lose over a sixth of its value and sparking concerns about the future of America’s AI dominance. The app, launched last week, has already become the most downloaded free app in the U.S., despite being developed at a fraction of the cost of its rivals.

DeepSeek’s sudden rise has rattled investors, leading to significant stock declines for major tech firms. Nvidia, a leading AI chipmaker, saw its shares plunge 16.9% on Monday, while Microsoft and Google‘s parent company, Alphabet, dropped 2.14% and over 4%, respectively. European markets were also affected, with Dutch chip equipment maker ASML falling more than 7% and Siemens Energy plummeting by a fifth.

The chatbot is powered by the open-source DeepSeek-V3 model, which its developers claim was trained for approximately $6 million—far less than the billions spent by competitors like OpenAI. This cost efficiency has raised questions about the sustainability of massive investments in AI infrastructure by U.S. firms. Last week, OpenAI and other companies pledged $500 billion to build AI infrastructure in the U.S., a move aimed at maintaining American technological leadership.

However, DeepSeek’s emergence challenges this narrative. The app’s developers say they leveraged existing technology and open-source code to create a model that rivals the performance of OpenAI’s latest offerings in tasks like math, coding, and natural language reasoning. “We didn’t expect pricing to be such a sensitive issue,” said Liang Wenfeng, DeepSeek’s founder, in a July 2024 interview. “We were simply following our own pace, calculating costs, and setting prices accordingly.”

DeepSeek’s success comes amid U.S. restrictions on the export of advanced chip technology to China. To circumvent these limitations, Chinese AI developers have collaborated and experimented with new approaches, resulting in models that require less computing power and cost significantly less to produce. This innovation has the potential to disrupt the global AI industry, which has long been dominated by U.S. firms.

Silicon Valley venture capitalist Marc Andreessen described DeepSeek’s rise as “AI’s Sputnik moment,” referencing the Soviet Union’s 1957 satellite launch that caught the U.S. off guard. The comparison underscores the growing concern among U.S. tech leaders about China’s rapid advancements in AI.

In addition to its market impact, DeepSeek announced on Monday that it would temporarily limit registrations due to “large-scale malicious attacks” on its software. The company assured existing users that they could continue to access the service without interruption.

Despite its success, some analysts caution that Chinese AI firms face challenges, including restricted access to advanced chips and potential regulatory hurdles. “We estimate that in an inevitably more restrictive environment, U.S. access to more advanced chips is an advantage,” said analysts at Citi in a report.

DeepSeek’s founder, Liang Wenfeng, a 40-year-old information and electronic engineering graduate, has been a key figure in the company’s rise. He previously founded a hedge fund that backed DeepSeek and amassed a significant stockpile of Nvidia A100 chips, which are now banned from export to China. Experts believe this cache enabled him to launch DeepSeek by pairing high-end chips with cheaper, lower-end alternatives.

As the global AI race intensifies, DeepSeek’s low-cost, high-performance model has positioned China as a formidable competitor, challenging the dominance of U.S. tech giants and reshaping the future of the industry.