A chatbot developed by Chinese company DeepSeek has skyrocketed to the top of Apple’s free app chart in the U.S. just weeks after its January debut. The app’s rapid rise, coupled with DeepSeek’s remarkably low development costs compared to U.S.-based AI firms, has sent shockwaves through financial markets.
Silicon Valley venture capitalist Marc Andreessen praised DeepSeek, calling it “one of the most amazing and impressive breakthroughs” in AI. According to the company, its AI models rival industry leaders like ChatGPT while being significantly more cost-effective.
DeepSeek’s researchers revealed that creating the app cost just $6 million — a stark contrast to the billions spent by U.S. competitors.
What Is DeepSeek?
DeepSeek, founded in late 2023 by Chinese hedge fund manager Liang Wenfeng, is a rising star among AI startups capitalizing on the booming demand for artificial intelligence. Liang, often likened to the “Sam Altman of China,” is a passionate advocate for AI innovation and investment through his hedge fund, High-Flyer, which prioritizes AI development.
While competing against industry players like Anthropic and Perplexity, DeepSeek has gained traction with its series of AI models. Its earlier V3 model drew attention but faced scrutiny due to content restrictions on sensitive topics involving the Chinese government, raising questions about its potential in global markets.
DeepSeek’s breakthrough came with the release of R1, unveiled in late 2024. Open-source and remarkably cost-efficient, R1 has set the tech world abuzz by proving that cutting-edge AI doesn’t have to come with billion-dollar price tags.
The impact has been immediate. Within a week of its launch, the DeepSeek app surged past ChatGPT to top the app store charts, amassing nearly 2 million downloads.
“While widely perceived as prohibitively expensive for AI research and engineering, Chinese models from Deep Seek have proved that with an engineering cost fraction of what was deployed by ChatGPT, the AI models are still deployable and usable across the spectrum by managing resources properly,” Vijay Valecha, Chief Investment Officer, Century Financial, said.
Why Did U.S. Tech Stocks Fall?
U.S. tech stocks took a massive hit, shedding hundreds of billions of dollars in market value after news of DeepSeek’s groundbreaking chatbot performance spread over the weekend. The timing couldn’t have been worse for Silicon Valley giants, who had recently committed vast sums toward AI development, primarily for building the computing infrastructure and energy sources deemed essential for achieving artificial general intelligence (AGI).
Meta announced plans last week to allocate over $65 billion this year toward AI development, reflecting the intense competition in the sector. Meanwhile, OpenAI CEO Sam Altman predicted last year that the AI industry would require trillions of dollars in investment to sustain the production of high-demand chips and to power the energy-intensive data centers essential for running advanced AI models.
“By developing cutting-edge AI models with less advanced and more cost-efficient hardware, DeepSeek challenges the heavy investments U.S. tech companies are pouring into high-cost AI infrastructure,” Charu Chanana, Chief Investment Strategist at Saxo Bank, said.
The Chinese startup’s ability to deliver competitive AI at a fraction of the cost challenges the assumption that astronomical investments are necessary for cutting-edge advancements in AI.
“Reports suggest that DeepSeek-R1’s API costs just $0.55 per million input tokens and $2.19 per million output tokens, compared to OpenAI’s API, which costs $15 and $60, respectively. This raises critical questions about whether the traditional capital-intensive approaches are sustainable in the long run,” Charu Chanana added.
Why Is Nvidia Concerned?
Nvidia has been one of the biggest beneficiaries of the AI boom, transitioning from a graphics card producer for gamers to the leading supplier of chips powering the energy-intensive AI industry.
However, the rise of DeepSeek and its cost-efficient approach has sparked concerns among tech companies about the necessity of continuing to rely heavily on Nvidia’s expensive tools. This uncertainty was reflected in Nvidia’s market value, which dropped by a staggering $600 billion on Monday – the largest one-day drop for any company in U.S. history.
Nvidia, which had recently claimed the title of the world’s most valuable company by market capitalization, slipped to third place behind Apple and Microsoft on Monday. Its market value dropped sharply from $3.5 trillion to $2.9 trillion, according to Forbes, following the disruptive impact of DeepSeek’s cost-efficient AI model on the tech industry.
“If companies like DeepSeek can innovate despite sanctions, the narrative around China’s technological dependence on the U.S. may shift dramatically,” Charu Chanana of Saxo Bank said.
