China's DeepSeek AI Disrupts Industry, Challenges US Dominance
The speed with which the new Chinese AI program DeepSeek has rattled the technology industry and markets, and the bullish feeling of American superiority in artificial intelligence (AI) has been spectacular.
Venture entrepreneur Marc Andreessen may have expressed it best. "DeepSeek-R1 is AI's Sputnik moment," he wrote to X on Sunday, alluding to the satellite that sparked the space race.
This weekend, DeepSeek was the most popular free software on Apple's US software Store. By Monday, the new AI chatbot had prompted a big sell-off of major tech companies, which were in freefall as concerns grew over America's leadership in the field.
Shares of Nvidia, an AI chip provider and recent Wall Street darling, had fallen 17% by the time US markets closed on Monday. To put it another way, it lost about $600 billion in market value, which Bloomberg claims is the most significant decline in the US stock market history.
This remarkable, historic spooking is mainly ascribed to a simple cost factor. And a claim made by DeepSeek's developers, which raised severe concerns in Silicon Valley.
While OpenAI, the company behind ChatGPT, has been losing money, spending $5 billion last year alone, DeepSeek's developers claim it produced this latest model for only $5.6 million.
That is a small fraction of the expense that AI behemoths like OpenAI, Google, and Anthropic have used to create their models.
As this crucial moment in the sector unfolded, there was a distinct stillness in many sections of Silicon Valley when I contacted folks who are typically eager to speak. Many viewers, investors, and analysts seemed surprised.
Some wondered if this represented a purchasing opportunity. Others questioned the information that DeepSeek was presenting.
"I still think the truth is below the surface when it comes to actually what's going on," renowned analyst Gene Munster told me on Monday. He questioned the financials DeepSeek provided, wondering if the business was being subsidized or if its figures were correct.
He stated that the chatbot is "surprisingly good, which makes it hard to believe".
DeepSeek's abrupt appearance is a "flex" by China and a "black eye for US tech," as he describes.
Only last week, OpenAI's Sam Altman and Oracle's Larry Ellison joined President Donald Trump for a news conference that could have been a press release.
The event exemplified peak American optimism about AI.
They unveiled Stargate, a joint venture promising up to $500 billion in private investment in AI infrastructure, including data centres in Texas and elsewhere, and 100,000 new employees.
Despite China's advantage in rare-earth metals and technical expertise, the United States believed its abundance of data centres and control over the most advanced chips gave it a decisive edge in AI.
Some have even assumed that America would dominate the AI race, despite high-profile cautions from top CEOs that the country's advantages should not be underestimated.
The United States may continue to dominate the sector, but there is a sense that DeepSeek has diminished some of its swagger.
Trump's statements following the Chinese app's abrupt appearance in recent days were most likely cold comfort to Altman and Ellison. He described this as a "wake-up call" for the American IT industry and added that finding a means to do cheaper AI is ultimately a "good thing".
It's also worth noting that Monday's losses extended beyond tech equities. Energy stocks performed similarly. DeepSeek's arrival has called into question several long-held notions about what it takes to develop artificial intelligence.
The nuclear renaissance may be unnecessary, which includes restarting America's Three Mile Island power plant. After all, it may not require as much capital, computation, and power.
For now, the future of silicon behemoths such as Nvidia is uncertain.
DeepSeek claims their approach was created using existing technology and open-source software, which anybody can use and share for free.
According to WIRED, DeepSeek founder Liang Wenfung's hedge fund High-Flyer has been collecting GPUs, or graphics processing units, for years.
The company stated that its models used Nvidia's H800 processors. US policy barring sales of higher-powered chips to China may be reconsidered under the next Trump administration.
OpenAI's Sam Altman was pretty silent on X Monday. However, he later stated that DeepSeek was "impressive…particularly around what they're able to deliver for the price".
"We will obviously deliver much better models, and also, it's legit invigorating to have a new competitor!" he added.
Sputnik marked the beginning of the space age. The United States was also caught off guard. How its tech sector reacts to this surprise from a Chinese corporation will be fascinating, and it may have given considerable fuel to the AI race.