United States President, Donald Trump, has described the rise of Chinese artificial intelligence (AI) firm DeepSeek as “a wake-up call” for the American tech industry.
The emergence of its AI model, DeepSeek-R1, sent shockwaves through Wall Street, with major tech firms—most notably Nvidia—experiencing sharp stock declines.
Nvidia, the world’s leading chipmaker for AI applications, saw its market value plunged by nearly $600 billion (£482 billion) following DeepSeek’s revelation that it developed its model at a fraction of the cost compared to its US rivals. The unexpected disruption has raised concerns about the future of America’s AI dominance and the level of investment required to remain competitive.
Despite the initial market panic, Trump struck a measured tone while speaking to reporters aboard Air Force One. “If you could do it cheaper, if you could do it [for] less [and] get to the same end result, I think that’s a good thing for us,” he said, adding that he was “not concerned” about the breakthrough and remained confident that the U.S. will continue to lead in AI development.
DeepSeek is powered by the open-source DeepSeek-V3 model, which its researchers claimed was trained for approximately $6 million (£4.2 million). The figure is significantly lower than the billions spent by leading AI firms such as OpenAI and Google DeepMind. However, industry experts have questioned the legitimacy of the claims.
The Chinese company boasted that DeepSeek-R1 delivers performance “on par with” some of OpenAI’s latest models in areas like mathematics, coding, and natural language reasoning. Even OpenAI CEO Sam Altman acknowledged its potential, calling it “an impressive model, particularly around what they’re able to deliver for the price,” though he asserted that OpenAI would “obviously deliver much better models” in the future.
Marina Zhang, an associate professor at the University of Technology Sydney, believed DeepSeek’s success demonstrates that “software ingenuity and data efficiency can compensate for hardware constraints.” Similarly, Ion Stoica, co-founder and executive chair of AI software company Databricks, noted that lower AI costs could accelerate adoption. “This reduction in cost can accelerate the progress of AI,” he explained. “So overall, the market will expand faster, and the value of the market will grow faster.”
DeepSeek’s emergence came amid the U.S. government’s tightening restrictions on AI chip exports to China. To counter these limitations, Chinese AI developers adopted collaborative strategies, sharing research and experimenting with ways to make AI models less dependent on advanced hardware.
DeepSeek claims its model was trained using just 2,000 specialized chips—far fewer than the estimated 16,000 required for leading U.S. models. However, skeptics—including Tesla and SpaceX CEO Elon Musk—have cast doubt on these claims. Responding to reports that DeepSeek has access to around 50,000 Nvidia chips that are now banned from export to China, Musk simply remarked: “Obviously.”
Following Monday’s turmoil in U.S. markets, the FTSE 100, the UK’s top stock index, remained resilient, rising by 0.46% in early Tuesday trading. Nvidia’s stock also showed signs of recovery, gaining slightly in after-hours trading, while Nasdaq futures ticked up by 0.1%. However, Asian markets reacted negatively, with shares in Japanese AI-related firms such as Advantest, SoftBank, and Tokyo Electron dropping sharply. The benchmark Nikkei 225 index fell 1.4%.
DeepSeek was founded in 2023 by Liang Wenfeng, an information and electronic engineering graduate based in Hangzhou, China. The 40-year-old also founded the hedge fund that financially backed DeepSeek. He was recently seen attending a high-profile meeting between industry experts and Chinese Premier Li Qiang.
In a July 2024 interview with The China Academy, Liang admitted he was surprised by the strong market response 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.”
DeepSeek has already become the most downloaded free app in the U.S. within just a week of its launch, demonstrating strong early adoption. As the AI landscape continues to evolve, its emergence could force American firms to rethink their development strategies, pricing models, and long-term investments in AI.
