The tech world rocketed this week when the Chinese AI model DeepSeek entered the market, causing a $1 trillion sell-off in US tech stocks.
The shock came as DeepSeek threatened the supremacy of US-based AI giants like OpenAI. The NASDAQ composite dropped 3.1%, highlighting concerns about the competitiveness of American AI firms.
Nvidia, known for its AI chips, lost a historic 17% in value, while Google's parent company, Alphabet, lost around $100 billion, and Microsoft lost $7 billion.
DeepSeek's growth is remarkable because it gained success on less advanced technology. US sanctions on high-end Nvidia chips didn't stop the company from developing its R1 model, which uses downgraded H800 CPUs.
The model, which is significantly cheaper to construct than its American counterparts, has questioned the multibillion-dollar AI investments of US tech firms.
DeepSeek's chatbot app quickly topped the App Store in the US and UK, surpassing OpenAI's ChatGPT. The company's founder, Liang Wenfeng, a Chinese hedge fund manager, emphasized making AI accessible and affordable. He began experimenting with AI in 2021 and transformed his passion into DeepSeek by 2023, with the company based in Hangzhou.
This development has evoked intense reactions, with some comparing DeepSeek's success to a "Sputnik moment," recalling the US-USSR space competition. Critics think that Washington's attempt to hinder China's technological advancement may not be functioning as intended.
US President Donald Trump described DeepSeek as a "wake-up call," whereas OpenAI CEO Sam Altman praised the accomplishment as a drive for healthy competition.
The shockwaves spread beyond the US markets to Europe and Asia. Companies such as ASML, Siemens Energy, and SoftBank also saw significant losses. This has made investors question whether the massive investment in AI will pay off.
DeepSeek's open-source approach, which makes its tools freely available, has sparked hope for further creativity in the worldwide AI community. This innovation potential is a silver lining in the cloud of uncertainty that the company's launch has cast over the US's domination of the global tech scene in the AI race.