Chinese AI Chatbot DeepSeek sparks global market shake-up

Launched just last week, the DeepSeek app has already surpassed competitors like OpenAI's ChatGPT, becoming the most downloaded free app in the US. This rapid success has sent shockwaves through the tech world, causing significant stock market losses for US giants like Nvidia, Microsoft, and Meta.

DeepSeek has been touted as a game-changer, reportedly developed at a fraction of the cost of its rivals—around $6 million compared to the billions spent by leading companies. The app leverages the open-source DeepSeek-V3 model, which uses pre-existing technologies and freely available software. While the firm's claims have faced some skepticism, its innovative approach has reignited debates about the future of AI and America's role in it.

This comes as US firms, including OpenAI, recently pledged $500 million to enhance AI infrastructure. President Donald Trump hailed it as "the largest AI infrastructure project in history," aimed at securing America's technological edge.

Meanwhile, China's AI developers have adapted to restrictions on advanced chip imports by pooling resources and experimenting with more efficient models. This collaborative approach has resulted in AI systems that require less computing power, dramatically reducing costs and reshaping industry expectations.

DeepSeek-R1, launched earlier this month, has claimed to rival OpenAI's latest models in tasks such as math, coding, and natural language processing. This achievement has been described by Silicon Valley venture capitalist Marc Andreessen as "AI's Sputnik moment," likening it to the surprise launch of the Soviet satellite in 1957.

The chatbot’s success has rattled markets worldwide, with Europe and the US seeing steep declines in tech-related stocks. Dutch chip equipment maker ASML saw shares fall by more than 10%, while Siemens Energy plunged by 21%.

“This low-cost AI model has caught the market off-guard,” said Fiona Cincotta, a senior analyst at City Index. “It raises serious concerns about the profitability of competitors who’ve invested heavily in costly AI infrastructure.”

However, analysts caution that US firms still have advantages, particularly access to advanced chips. A report from Citi noted that challenges faced by Chinese firms, including geopolitical restrictions, could limit their long-term potential.

Who’s Behind DeepSeek?

DeepSeek was founded in 2023 by Liang Wenfeng, a graduate of information and electronic engineering based in Hangzhou, China. Liang, who also runs a hedge fund that backed the project, reportedly stockpiled Nvidia A100 chips—now banned for export to China—and paired them with lower-end alternatives to launch DeepSeek.

Liang recently attended a meeting with Chinese Premier Li Qiang and expressed surprise at the global reaction to DeepSeek's earlier model. In a July 2024 interview, he commented, “We didn’t realize pricing would be so sensitive. We were simply calculating costs and setting prices accordingly.”

DeepSeek’s rise underscores the shifting dynamics in the AI landscape, raising pressing questions about cost, innovation, and the future of global competition in technology.