An artificial intelligence chatbot from Chinese startup DeepSeek is upending assumptions that U.S. tech giants hold a firm grip on AI development, leading to a stock market shakeup and renewed concerns over national security.
DeepSeek's bot assistant became the No. 1 downloaded free app on Apple’s iPhone store on Monday, outpacing OpenAI's ChatGPT. AI-related companies like Nvidia, Microsoft and Oracle saw sharp declines as DeepSeek's rally erased nearly $1.2 trillion in market capitalization value from global stock names, according to Bloomberg data.
The fallout underscored how central AI has become to the U.S. economy beyond the tech sector. Nuclear power, crypto and infrastructure stocks were also impacted by DeepSeek's rally.
And it raised questions about the billions of dollars tech companies say they'll use for future development, given that a Chinese startup has caught up with them at a much lower cost.
What is DeepSeek?
DeepSeek was founded in 2023 by Liang Wenfeng, an entrepreneur who also established the Chinese stock trading firm High-Flyer.
DeepSeek attracted attention when it said its AI model released last month could compete with similar ones, like OpenAI's ChatGPT, at a fraction of the cost. Its first free chatbot app was released this month, and became widely accessible on Apple and Google app stores.
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In a research paper, DeepSeek said it used significantly fewer computer chips to build the technology than leading AI companies used for theirs.
Before launching the chatbot, Wenfeng had acquired a substantial stockpile of chips sold by Nvidia that have since been banned from being exported to China, according to MIT Technology Review.
“Recognizing the potential of this stockpile for AI training is what led Liang to establish DeepSeek, which was able to use them in combination with the lower-power chips to develop its models," according to the publication.
Shares of Nvidia plunged 17% after DeepSeek showed it could do more with fewer chips, The New York Times reported.
"Nvidia is having a really bad day," Gary Marcus, an entrepreneur and AI critic, posted on X. “OpenAI’s day is worse. Their business model (charging big bucks for LLMs) basically just blew up, DeepSeek is running circles around them.”
Why are tech giants rattled?
DeepSeek's breakthrough challenges the tech industry's "bigger is better" narrative, The Times reported. It was thought that leaders in the AI race needed to spend large amounts of money to develop the infrastructure needed to expand their products.
Microsoft, Meta and Google have spent tens of billions of dollars and plan to spend billions more, The Times reported. And last week, the Trump administration touted "Stargate," a $500 billion AI infrastructure project with OpenAI, Softbank and Oracle to build data centers in the U.S. they say are needed for AI development.
"What we’ve found is that DeepSeek ... is the top performing, or roughly on par with the best American models"
Approximately $1 trillion is set to be spent globally on AI development in the coming years, according to estimates by Goldman Sachs. But DeepSeek developed its AI model for $6 million, according to Wedbush Securities analyst Dan Ives.
DeepSeek was also able to create a more open-source product that could potentially accelerate wider adoption. Open source technology offers components that are free for anyone to access and modify.
Developers of AI-powered applications "have rushed to test DeepSeek after seeing its performance in publicly available evaluations," The Information, a tech-focused business publication, reported.
This success could prompt investors to put their money into smaller AI startups, The Times reported, and create more competition for Big Tech titans.
Scale AI CEO Alexander Wang said the U.S. is now in an "AI war" with China.
“What we’ve found is that DeepSeek ... is the top performing, or roughly on par with the best American models,” he said, according to CNBC.
What are the security concerns?
The pace at which U.S. consumers have embraced DeepSeek is raising national security concerns similar to those surrounding TikTok, the social media platform that faces a ban unless it is sold to a non-Chinese company.
The U.S. Supreme Court this month upheld a federal law that requires TikTok's sale. The Court sided with the U.S. government's argument that the app can collect and track data on its 170 million American users. President Donald Trump has paused enforcement of the ban until April to try to negotiate a deal.
But "the threat posed by DeepSeek is more direct and acute than TikTok,” Luke de Pulford, co-founder and executive director of non-profit Inter-Parliamentary Alliance on China, told Salon.
DeepSeek is a fully Chinese company and is subject to Communist Party control, unlike TikTok which positions itself as independent from parent company ByteDance, he said.
“DeepSeek logs your keystrokes, device data, location and so much other information and stores it all in China,” de Pulford said. “So you’ll never know if the Chinese state has been crunching your data to gain strategic advantage, and DeepSeek would be breaking the law if they told you.”
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