The AI frenzy that has reshaped the tech world and commanded the attention of Wall Street took an anxious turn Monday after a Chinese upstart burst onto the scene, dazzling early users and sparking fears that US AI leadership is now under threat.
It wasn’t just the Chinese model’s performance that rattled American investors and executives. The team behind DeepSeek, the AI model maker, claims that the technology uses cheaper chips and less data than the popular American AI assistants that have captivated the tech elite and the broader public.
A foreign competitor offering a rival product at a fraction of the cost has thrown into question the exorbitant spending of American tech giants. And it has poked holes in the idea of US tech supremacy and innovation, at the cost of many of Wall Street’s most favored companies.
If the most expensive and sought-after AI chips aren’t as vital as previously thought, an entire ecosystem built around massive AI investment could be in jeopardy.
DeepSeek is a Chinese startup that develops AI models. Its new R1 model, released in late January, has drawn swift praise for its performance benchmarks. Its impressive feats spurred a surge in usage. The DeepSeek app now ranks at the top for iPhone downloads in the US, just ahead of the OpenAI’s ChatGPT. “DeepSeek-R1 is now live and open source, rivaling OpenAI’s Model,” the company claims on its website.
American venture capitalist Marc Andreessen called the model “one of the most amazing and impressive breakthroughs I’ve ever seen.” Perhaps even more striking than DeepSeek’s on-par performance is the cost of its development. DeepSeek claims that its breakthrough model cost less than $6 million to train. That’s a staggeringly modest figure, considering OpenAI’s GPT model cost more than $100 million to train.
If Wall Street had already expressed some skepticism about the AI spending sprees of US tech companies, the existence of a cheaper alternative could amplify that criticism. The broader implication of DeepSeek’s usefulness is that it may undermine the current development process of AI assistants. Why should investors accept huge spending increases from US tech giants when a cheaper alternative is already available?
The American tech company at the heart of the AI growth story received one of the sharpest blows. Nvidia (NVDA) stock dropped more than than 12%. Other members of the “Magnificent Seven” who have made AI central to their growth stories also took some damage. Microsoft (MSFT), Alphabet (GOOGL,GOOG), and Amazon (AMZN) all fell 2% in morning trading.
