DeepSeek, a Chinese artificial intelligence (AI) business, has sparked concern in Silicon Valley after introducing a new AI model that appears to compete with leading AI enterprises in the United States for a fraction of the cost.
The one-year-old business debuted an AI model named R1 last week, prompting parallels to OpenAI and Google models and sending U.S. stocks falling during weekend after-hours trading.
DeepSeek has risen to the top of the Apple App Store in recent days. As of Monday morning, the app was the No. 1 free app in the store, with ChatGPT-maker OpenAI at No. 2.
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The company, created in May 2023, purportedly spent only $5.6 million to train its latest models, according to The Wall Street Journal, which broke the story over the weekend. The apparent cost pales in comparison to the billions of dollars spent by US firms to create and maintain AI models.
Meta CEO Mark Zuckerberg announced this week that his social media business expects to invest $60 billion to $65 billion on AI development this year. Meta shares dipped by around 3.5 percent on Monday.
The Chinese software grabbed the attention of some key Silicon Valley firms, while some are concerned that China is undermining the apparent invincibility of the US technological industry.
“Deepseek R1 is one of the most amazing and impressive breakthroughs I’ve ever seen,” Silicon Valley venture capitalist Marc Andreessen said in a post on the social network X on Friday.
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Despite the hoopla and stock market reaction, some in the sector believe China has a long way to go before it can compete with the United States’ AI infrastructure.
“While the model is impressive and it will have a ripple impact, the reality is that Mag 7 and US tech is focused on the AGI endgame with all the infrastructure and ecosystem that China and especially DeepSeek cannot come close to in our view,” analysts at Wedbush noted in a Monday note to customers.
Nonetheless, U.S. stocks fell sharply on Monday, with the tech-focused Nasdaq plunging 3.9 percent before the bell. Chipmakers Nvidia and Broadcom fell nearly 12%, while Google’s parent company Alphabet fell roughly 3.5 percent.
“DeepSeek built the model using reduced capability chips from Nvidia which is impressive and thus has caused major agita for US tech stocks with massive pressure on Nasdaq this morning,” analysts at Wedbush explained.
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The shockwaves in Silicon Valley came after a months-long campaign against China’s advances in chip manufacturing.
Over the last year, the Biden administration has imposed a number of limitations on the sale of specific semiconductor chips and equipment to China.
U.S. officials hope that limiting China’s chip output will slow the development of military weapons and AI systems that pose a threat to US national security.
As one of his first official acts since returning to the White House last week, President Trump launched the Stargate project, which would spend up to $500 billion in AI infrastructure in the United States over the next four years.
The project’s first investors include OpenAI, Oracle, and SoftBank.
The president referred to it as the “greatest AI infrastructure project by far in history,” alluding to the global competition the United States faces in new technology.
“It ensures the future of technology. “What we want to do, we want to keep in this country—China is a competitor, as are others,” Trump remarked last week.
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