In a surprising turn of events, US tech giant Nvidia witnessed a significant drop in its share value after the launch of a Chinese artificial intelligence (AI) app, DeepSeek, sparked investor concerns in both the US and European markets. DeepSeek, an AI chatbot developed at a fraction of the cost of its competitors, has quickly become the most downloaded free app in the US.

Nvidia, alongside other tech firms like Microsoft and Google, saw a sharp decline in their stock prices following DeepSeek's rapid rise. The AI chip manufacturer experienced a 16.9% drop in value, while Broadcom fell by 17.4%. Microsoft and Google's parent company Alphabet also saw declines, with their shares dropping 2.14% and over 4%, respectively.

DeepSeek, which launched last week, has generated considerable attention due to its cost-effectiveness and efficiency. Developed using the open-source DeepSeek-V3 model, the chatbot was reportedly created for around $6 million, significantly less than the billions spent by its rivals. This development raises questions about the future of AI dominance and the scale of investments being made by US firms.

In a separate statement, DeepSeek announced that it would temporarily limit new user registrations due to "large-scale malicious attacks" on its software. Existing users can continue to access the service without interruption.

The emergence of DeepSeek comes amid ongoing restrictions by the US on the sale of advanced AI chip technology to China. Chinese AI developers have responded by collaborating and experimenting with new approaches, resulting in AI models that require less computing power and are more cost-effective.

The recent launch of DeepSeek-R1 has further intensified the competition, with the company claiming performance on par with one of OpenAI's latest models for tasks such as mathematics, coding, and natural language reasoning. This has led some industry experts, including Silicon Valley venture capitalist Marc Andreessen, to describe DeepSeek-R1 as "AI's Sputnik moment," drawing a parallel to the technological advancements of the Soviet Union in the late 1950s.

The sudden popularity of DeepSeek has rattled stock markets, with significant impacts felt across both the US and Europe. Dutch chip equipment maker ASML saw its share price drop by more than 7%, while Siemens Energy, which produces AI-related hardware, experienced a 20% decline.

Analysts are divided on the long-term implications of DeepSeek's rise. While some caution that it could challenge the dominance of American AI companies, others point to the advantages US firms have in access to advanced chips and resources.

The company behind DeepSeek was founded in 2023 by Liang Wenfeng in Hangzhou, China. Liang, an information and electronic engineering graduate, also established the hedge fund that supported DeepSeek's development. He reportedly amassed a significant stockpile of Nvidia A100 chips before export restrictions were imposed.

In a recent interview, Liang expressed surprise at the sensitivity surrounding pricing, stating that the company was simply following its own pace and cost calculations. Despite the challenges, DeepSeek's innovative approach and rapid success have positioned it as a major player in the AI landscape.
Image by BBC