U.S. tech stocks went reeling after a small Chinese artificial intelligence startup said it can compete with the likes of ChatGPT and other U.S.-based AI models at a fraction of the cost.
DeepSeek, a Hangzhou-based startup founded in 2023, shot to the top of Apple’s App Store free app chart after releasing a new open-source AI model it says rivals OpenAI’s o1 model. Its website was hit by outages amid a spike in interest.
Tech stocks, including those for leading AI chip manufacturer Nvidia, tumbled Monday.
“Clearly tech stocks are under massive pressure led by Nvidia as the Street will view DeepSeek as a major perceived threat to US tech dominance and owning this AI Revolution,” Wedbush Securities analyst Daniel Ives said in a note.
DeepSeek is an artificial intelligence lab. The startup says its AI models, DeepSeek-V3 and DeepSeek-R1, are on par with OpenAI and Meta’s most advanced models.
Chinese corporate records show the controlling shareholder is Liang Wenfeng, co-founder of the hedge fund High-Flyer.
DeepSeek says it cost less than $6 million to train its DeepSeek-V3 model. OpenAI, in comparison, spent more than $100 million to train the latest version of ChatGPT, according to Wired.
Analysts say the technology is impressive, especially since DeepSeek says it used less-advanced chips to power its AI training.
The former President Joe Biden’s administration had limited the export of certain advanced AI chips.
“In the wrong hands, powerful AI systems have the potential to exacerbate significant national security risks, including by enabling the development of weapons of mass destruction, supporting powerful offensive cyber operations, and aiding human rights abuses, such as mass surveillance,” the Biden administration said in a statement earlier this month.
But DeepSeek says the chip restrictions haven’t stopped it from releasing a model that is 20 to 50 times cheaper than the OpenAI o1 model, depending on the task.
“We were primed to expect that AI development would grow by leaps and bounds since the public launch of ChatGPT, but the U.S. was caught by surprise when the latest leap came from China,” Damian Rollison, director of market insights for AI marketing firm SOCi, told USA TODAY in an emailed statement.
Some have disputed the startup’s claims. Scale AI CEO Alexandr Wang argued during a CNBC interview last week that the startup used advanced Nvidia chips. Bernstein analysts also said in a note that total training costs were higher than DeepSeek claims.
DeepSeek did not respond to a request for comment from USA TODAY.
Tech stocks tumbled Monday morning. Chip manufacturer Nvidia fell as much as 18%, wiping out about $560 billion from the company’s market cap ‒ the largest in market history, according to Bloomberg.
The benchmark S&P 500 was down 1.9%, the Dow Jones Industrial Average was up 0.3% and the tech-heavy Nasdaq composite was down 3.4% early Monday afternoon.
DeepSeek’s app is powered by the DeepSeek-V3 model. The startup describes its app as using “state-of-the-art” AI that “leads global standards and matches top-tier international models.”
The app hit the top of Apple’s App Store “top free apps” chart after a Jan. 10 launch.
DeepSeek is the latest app with connections to China to hit the top of the Apple App Store charts. TikTok competitor RedNote shot to the top of the social networking app rankings earlier this month.
DeepSeek, even more than TikTok and RedNote, is expected to raise security concerns, according to Rollison of SOCi.
“It seems likely that the AI arms race, as it’s already being called, will have geopolitical implications that go beyond mere economic competition, which will in turn impact the future of these transformative technologies,” Rollison said.
DeepSeek’s website on Monday said registration may be busy “due to large-scale malicious attacks” on services. It suggested new users wait and try again. Registered users can log in normally, according to the company.
Contributing: Reuters
This article originally appeared on USA TODAY: What is DeepSeek? What to know about the Chinese AI startup
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