The global artificial Intelligence (AI) industry has experienced a seismic shift following the launch of DeepSeek, a low-cost Chinese chatbot that has rapidly overtaken rivals like ChatGPT to become the most downloaded free app in the United States.
The unexpected rise of the AI tool, developed by DeepSeek AI, sparked a sharp decline in the stock prices of major tech firms, raising concerns over the dominance of US AI companies.
Following the chatbot’s debut last week, shares of Nvidia—a key player in AI chip manufacturing—fell by 10%, while Microsoft and Meta also saw early trading losses on Monday. The shockwaves extended beyond the US, with ASML, the Dutch chip equipment giant, seeing a 10% decline, and Siemens Energy, which supplies AI-related hardware, experiencing a 21% drop.
Market analysts attributed this reaction to DeepSeek’s dramatically lower development costs. While US AI firms have invested billions in building powerful models, DeepSeek-V3, the open-source model powering the chatbot, was reportedly developed for under $6 million (£7.5 million).
“This idea of a low-cost Chinese version hasn’t necessarily been forefront, so it’s taken the market a little bit by surprise,” said Fiona Cincotta, a senior market analyst at City Index. “If you suddenly get this low-cost AI model, then that’s going to raise concerns over the profits of rivals, particularly given the amount that they’ve already invested in more expensive AI infrastructure.”
Singapore-based technology equity advisor Vey-Sern Ling warned that DeepSeek’s emergence could “potentially derail the investment case for the entire AI supply chain.”
DeepSeek’s success was attributed to its innovative approach—leveraging existing technology, open-source code, and cost-efficient computing power to rival high-end AI models.
Earlier in January, the company unveiled DeepSeek-R1, claiming it performs “on par with” OpenAI’s latest models in math, coding, and natural language reasoning.
This leap in Chinese AI innovation has drawn comparisons to historic technological disruptions. Marc Andreessen, a Silicon Valley venture capitalist and advisor to Donald Trump, described DeepSeek-R1 as “AI’s Sputnik moment”—referring to the Soviet Union’s surprise launch of the first artificial satellite in 1957, which caught the US off-guard.
The breakthrough also came amid US export restrictions on advanced AI chips to China, forcing Chinese firms to explore alternative solutions. Rather than relying on steady imports of high-end chips, local developers have shared resources and experimented with new AI architectures, resulting in models that demand significantly less computing power—thus lowering costs.
The AI industry’s response to DeepSeek has been mixed. Some experts believed the model posed a legitimate challenge to US dominance, while others argued that China’s regulatory environment and chip shortages could slow its progress.
A report from Wall Street banking giant Citi noted, “We estimate that in an inevitably more restrictive environment, US access to more advanced chips is an advantage.”
In what may be a strategic countermeasure, a consortium of US tech firms and foreign investors recently announced The Stargate Project, a $500 billion AI infrastructure initiative in Texas.
DeepSeek AI was founded in 2023 by Liang Wenfeng, an information and electronic engineering graduate based in Hangzhou, China. Before launching DeepSeek, Liang established a hedge fund that backed the company’s development.
Reports suggested that Liang stockpiled thousands of Nvidia A100 chips—now banned for export to China—before restrictions were implemented. Estimates suggest he accumulated around 50,000 units, which he paired with cheaper, lower-end chips still available for import.
His influence in China’s AI sector was underscored by his recent attendance at a high-level meeting with Chinese Premier Li Qiang.
In a July 2024 interview with The China Academy, Liang expressed surprise at the global reaction to DeepSeek’s cost efficiency, “We didn’t expect pricing to be such a sensitive issue. We were simply following our own pace, calculating costs, and setting prices accordingly.”
DeepSeek’s emergence signaled a major shift in AI economics. The race was no longer just about power and performance but also cost efficiency.
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