The sudden arrival of a little-known Chinese app called DeepSeek to the top of the app charts over the weekend sent the US tech industry into a trillion-dollar tailspin.
In the space of a few hours, several of the world’s biggest companies saw their stock plummet, with Nvidia experiencing the biggest one-day loss in market value in history – more than $500bn (£402bn).
The shock was caused by how quickly a relatively unknown AI startup could catch up with the best apps developed by the US giants. DeepSeek’s R1 chatbot came with similar capabilities to OpenAI’s most advanced ChatGPT tool, while also being free-to-use, open-source, and developed at a fraction of the cost.
US president Donald Trump described the artificial intelligence chatbot as a “wake-up call” for the industry, with tech firms suffering significant dips in their share prices on Monday morning. The worst hit were the chip makers, which have experienced a massive surge in value since the rise of generative AI and the increased demand for their products. Nvidia and Broadcom both saw their value drop by around a fifth.
“DeepSeek’s release of a premium level AI tool, available freely, with a reported (comparatively) miniscule development cost has shaken faith in Silicon Valley and American dominance in the rapidly developing AI market,” Dr Richard Whittle, an economist from the University of Salford, told The Independent.
“The economics are quite simple, if a reasoning model can be developed so cheaply, then where is the value in the existing giants such as OpenAI, who have heavily invested in – what could be revealed to be – inefficient development models? Likewise, heavy investment in the chips required to develop these models may also be questioned, explaining Nvidia’s massive drop in share price.”
The modest bounce back on Tuesday in pre-trading suggests some faith has been restored in the US tech market, with Dr Whittle pointing to existing strengths and capital positions that will allow companies to increase the development of future AI models. The threat posed by DeepSeek could also energise the space, leading to an acceleration in the AI arms race.
OpenAI chief executive Sam Altman praised DeepSeek’s cost-effective AI, however, he claimed that his company would be unveiling improved models that would lead the way towards human-level artificial intelligence.
“DeepSeek’s R1 is an impressive model, particularly around what they’re able to deliver for the price,” he wrote in a post on X (Twitter). “We will obviously deliver much better models and also it’s legit invigorating to have a new competitor! We will pull up some releases... Look forward to bringing you all AGI [artificial general intelligence] and beyond.”
DeepSeek’s arrival could herald a new era of intense competition in the space that stretches beyond the US tech industry. The company’s biggest markets include the Middle East and Russia, where download rates of its app have been more than 300 per cent higher than its rivals, according to data shared with The Independent by app tracking firm Sensor Tower.
“DeepSeek has the potential to reshape the future of AI. This new rivalry will drive faster progress, spark fresh ideas, and deliver technologies that benefit people, businesses, and economies worldwide,” said Russ Shaw, founder of Global Tech Advocates.
“More importantly, it could fuel economic growth and unlock opportunities to develop talent and skills on a massive scale. It’s clear we’re at a pivotal moment that could shape innovation and economic progress for years to come.”
