Shares in major US technology companies have sharply declined following the rapid rise of a low-cost chatbot developed by DeepSeek, a Chinese artificial intelligence (AI) firm.
The DeepSeek app launched last week has quickly surpassed competitors, including OpenAI’s ChatGPT, to become the most downloaded free app in the US.
On Monday, share prices of US tech giants such as AI chipmaker Nvidia, Microsoft, and Meta dropped.
In a related announcement, DeepSeek stated it would temporarily limit new registrations due to “large-scale malicious attacks” targeting its software.
The DeepSeek chatbot was reportedly developed for a fraction of the cost compared to its competitors, raising questions about the future of America’s dominance in AI and the scale of investments that U.S. firms are planning.
Last week, OpenAI joined a coalition of other companies in pledging to invest $500 billion (£400 billion) in building AI infrastructure in the U.S.
President Donald Trump called it “the largest AI infrastructure project in history in one of his first announcements since returning to the office.” He said it would help maintain “the future of technology” in the U.S.
DeepSeek is powered by the open-source DeepSeek-V3 model, which its researchers claim was trained at approximately $6 million—significantly less than the billions spent by its rivals.
However, others in the AI field have disputed this claim.
The researchers assert that they utilize existing technology in addition to open-source code, which is software available for anyone to use, modify, or distribute free of charge.
DeepSeek’s emergence comes as the U.S. restricts the sale of advanced chip technology that powers AI to China.
Chinese AI developers have adeptly responded to the challenges posed by inconsistent supplies of advanced imported chips by fostering collaboration and exploring innovative technological strategies. This joint effort has resulted in the creation of AI models that demand significantly less computational power than their predecessors, rendering them considerably more accessible and affordable than previously anticipated. These breakthroughs hold the potential to fundamentally disrupt the industry.
With the recent introduction of DeepSeek-R1 earlier this month, the company asserts that its performance matches one of OpenAI’s latest models in essential tasks such as mathematics, coding, and natural language reasoning.
Marc Andreessen, a Silicon Valley venture capitalist and advisor to former President Trump, has characterized DeepSeek-R1 as “AI’s Sputnik moment,” alluding to the 1957 satellite launch by the Soviet Union that initially caught the United States unprepared in the face of technological advancements.
The abrupt rise in DeepSeek’s popularity has surprised stock markets in Europe and the United States. In the US, AI chipmaker Nvidia’s stock price dropped by a staggering 16.9%, while its rival Broadcom’s plummeted by 17.4%.
Other technology companies experienced similar declines, with Microsoft falling by 2.14% and Alphabet, Google’s parent company, dropping more than 4%. In Europe, Dutch chip equipment manufacturer ASML witnessed a share price decline of over 7%, while Siemens Energy, specializing in AI-related hardware, suffered a shocking plunge of nearly 20%.
Fiona Cincotta, a senior market analyst at City Index, remarked, “The concept of an affordable Chinese alternative has not been widely recognized, which has caught the market somewhat off guard.”
Who founded DeepSeek?
DeepSeek was founded in 2023 by Liang Wenfeng in Hangzhou, a city in southeastern China. Liang, a 40-year-old information and electronic engineering graduate, established the hedge fund that supports DeepSeek.
He reportedly amassed a substantial inventory of Nvidia chips, now banned from export to China. Experts estimate that this collection includes around 50,000 chips, which is believed to have motivated him to launch DeepSeek. He combined these high-end chips with more affordable, lower-end ones that are still permitted for import.
Recently, Mr. Liang attended a meeting with industry experts and Chinese Premier Li Qiang.
In a July 2024 interview with The China Academy, Mr. Liang expressed surprise at the public’s reaction to the previous version of his AI model.
“We didn’t expect pricing to be such a sensitive issue,” he stated. “We were simply moving at our own pace, calculating costs, and setting prices accordingly.” Says BBC (Source)
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