Shares in major U.S. technology companies plunged after the rapid rise of a low-cost chatbot built by a Chinese artificial intelligence (AI) firm.
The Deepseek app, which launched last week, has overtaken competitors including Openai’s chatppt to become the most downloaded free app in the United States.
US tech giants including chipmaker AI, Nvidia, Microsoft and Meta all saw their stocks decline on Monday.
The Chinese chatbot was reportedly developed for a fraction of the cost of its competitors, raising questions about the future of U.S. AI dominance and the scale of investments U.S. companies are planning.
Last week, Openai joined a group of other companies that committed to investing $500m (£400m) in building AI infrastructure in the US.
President Donald Trump, in one of his first announcements since returning to office, called it “the largest AI infrastructure project by far in history” This would help keep “the future of technology” in the United States.
Deepseek is powered by the open source Deepseek-V3 model, which its researchers say was developed for around $6 million – significantly less than the billions spent by competitors.
But this claim has been disputed by others in AI.
The researchers say they use already existing technology, as well as open source code – software that can be used, modified or distributed by anyone for free.
Deepseek’s emergence comes as the United States restricts the sale of advanced chip technology that powers AI to China.
To continue their work without stable supplies of imported advanced chips, Chinese AI developers have shared their work among themselves and experimented with new approaches to the technology.
This has resulted in AI models that require much less computing power than before.
This also means they cost far less than possible, which has the potential to shake up the industry.
After Deepseek-R1 launched earlier this month, the company boasted “Performance on par with” one of Openai’s latest models when used for tasks such as math, coding and natural language reasoning.
Silicon Valley venture capitalist and Trump adviser Marc Andreessen described Deepseek-R1 as “AI’s Sputnik moment,” a reference to the satellite launched by the Soviet Union in 1957.
At the time, the United States was seen as caught off guard by its rival’s technological achievement.
Deepseek’s sudden popularity surprised stock markets in Europe and the United States.
ASML, the Dutch chip equipment maker, saw its stock price tumble more than 10% while shares in Siemens Energy, which makes AI-related hardware, plunged 21%.
“This idea of a low-cost Chinese version hasn’t necessarily been at the forefront, so it’s taken over the market a little bit,” said Fiona Cincotta, senior market analyst at City Index.
“So if you suddenly get this low-cost AI model, it’s going to raise concerns about competitors’ profits, especially given how much they’ve already invested in more expensive AI infrastructure.”
Singapore-based tech stock advisor Vey-Sern Ling told the BBC it could “potentially derail the investment case for the entire AI supply chain”.
But Wall Street banking giant Citi has warned that while Deepseek could challenge the dominant positions of US companies such as OpenAI, problems faced by Chinese companies could hamper their development.
“We believe that in an inevitably more restrictive environment, access to more advanced chips is an advantage,” the analysts said in a report.
The company was founded in 2023 by Liang Wenfeng in Hangzhou, a city in southeastern China.
The 40-year-old, who has a degree in information and electronic engineering, also founded the hedge fund that backed Deepseek.
He would have Built a store for Nvidia A100 chips, now banned from export to China. Experts believe this collection – which some estimates have put at 50,000 – led him to launch Deepseek, pairing these chips with cheaper, lower-end chips that are still available to import.
Mr. Liang was recently seen at a meeting between industry experts and Chinese Premier Li Qiang.
In a July 2024 interview with The Chinese AcademyMr. Liang said he was surprised by the reaction to the previous version of his AI model.
“We didn’t expect pricing to be such a sensitive issue,” he said.
“We were just going at our own pace, calculating costs and pricing accordingly.”
Additional reporting by Joao da Silva and Dearbail Jordan.
