Chinese artificial intelligence (AI) startup DeepSeek has taken the global tech industry by storm, topping app download charts and causing billions of dollars in losses for major U.S. tech stocks, particularly chip giant Nvidia.
The company’s rapid rise has raised concerns in Silicon Valley about the future dominance of American AI firms and prompted former U.S. President Donald Trump to call it a “wake-up call” for U.S. companies.
DeepSeek’s Rapid Ascent
DeepSeek made headlines in January when it launched DeepSeek R1, an AI model said to rival OpenAI’s technology at a fraction of the cost. The model, reportedly as powerful as OpenAI’s GPT-4 o1, has demonstrated strong performance in areas like mathematics and coding.
What has particularly unsettled investors is DeepSeek’s claim that it trained R1 for just $6 million, compared to OpenAI’s estimated $100 million+ cost to develop its most advanced models.
Despite U.S. restrictions on exporting high-performance chips to China, DeepSeek’s founder Liang Wenfeng reportedly stockpiled Nvidia A100 chips before they were banned and combined them with less advanced, lower-cost hardware to optimize performance.
DeepSeek’s AI assistant quickly became the most-downloaded free app on Apple’s App Store in the U.S., but its rapid growth was met with challenges. Shortly after launch, the company said it faced “large-scale malicious attacks,” leading to temporary registration limits and website outages.
Impact on U.S. Tech Stocks
DeepSeek’s cost-effective AI breakthrough shook global financial markets, casting doubt on the assumption that big budgets and access to top-tier chips were the only ways to lead in AI development.
On January 27, the Nasdaq index dropped more than 3% in a broad sell-off affecting tech stocks, data centers, and chip manufacturers. Nvidia’s stock plunged 17%, erasing nearly $600 billion in market value before beginning a recovery.
Nvidia, which had briefly become the world’s most valuable company, fell to third place behind Apple and Microsoft after its market value dropped from $3.5 trillion to $2.9 trillion, according to Forbes.
Wei Sun, an AI analyst at Counterpoint Research, noted:
“DeepSeek has proven that cutting-edge AI models can be developed with limited compute resources. This challenges OpenAI’s dominance and raises concerns over Nvidia’s long-term chip demand.”
China’s Reaction and Global Scrutiny
DeepSeek’s rise has been hailed as a major victory for China’s AI ambitions. State media celebrated its success, with headlines boasting that Silicon Valley and Wall Street were “losing sleep” over the startup’s impact.
While the Chinese Communist Party has not officially commented, analysts see DeepSeek as proof of China’s growing tech independence amid U.S. sanctions. However, experts warn that this could also lead to “tech isolationism.”
The company’s success has also drawn global regulatory scrutiny. Several governments have raised concerns over data privacy and national security risks linked to DeepSeek.
Australia has banned DeepSeek from government devices.
Italy blocked the app and ordered it to halt processing Italian citizens’ data.
Other countries have launched investigations into how DeepSeek stores and handles user information on China-based servers.
Who Is Behind DeepSeek?
DeepSeek was founded in December 2023 by Liang Wenfeng, a Zhejiang University graduate with degrees in electronic engineering and computer science. Unlike many Silicon Valley AI leaders, Liang has a background in finance.
As the CEO of High-Flyer, a hedge fund specializing in AI-driven quantitative trading, Liang made history in 2019 by raising over 100 billion yuan ($13 million)—a first for a Chinese quant fund.
In a rare interview last year, Liang emphasized China’s need to become an AI leader, not just a follower. When asked why DeepSeek’s model shocked Silicon Valley, he responded:
“Their surprise stems from seeing a Chinese company join their game as an innovator, not just a follower.”
The Future of AI Competition
DeepSeek’s success has upended expectations in the AI industry. With low-cost, high-performance models, the company challenges the U.S. dominance in AI innovation and raises questions about the future demand for expensive AI chips from Nvidia.
As the global AI race intensifies, DeepSeek’s impact will likely continue reshaping the market—both technologically and financially.
