DeepSeek AI shakes American swagger and upends assumptions
2025-01-28
Category: news

The speed at which the new Chinese AI app DeepSeek has shaken the technology industry, the markets and the bullish sense of American superiority in the field of artificial intelligence (AI) has been nothing short of stunning.Venture capitalist Marc Andreessen may have said it best. "DeepSeek-R1 is AI's Sputnik moment," he posted to X on Sunday, referring to the satellite which kicked off the space race.DeepSeek was the most downloaded free app on Apple's US App Store over the weekend. By Monday, the new AI chatbot had triggered a massive sell-off of major tech stocks which were in freefall as fears mounted over America's leadership in the sector.Shares of AI chip designer and recent Wall Street darling Nvidia, for example, had plunged by 17% by the time US markets closed on Monday. Or to put it in even starker terms, it lost nearly $600bn in market value which, according to Bloomberg, is the biggest drop in the history of the US stock market.This extraordinary, historic spooking can largely be attributed to something as simple as cost. And a claim by DeepSeek's developers which prompted serious questions in Silicon Valley.While ChatGPT-maker OpenAI has been haemorrhaging money - spending $5bn last year alone - DeepSeek's developers say it built this latest model for a mere $5.6m.That is a tiny fraction of the cost that AI giants like OpenAI, Google, and Anthropic have relied on to develop their own models.EXPLAINED: What is DeepSeek and why did it cause stocks to drop?HANDS ON: Is DeepSeek as good as it seems?As this dramatic moment for the sector played out, there was a palpable silence in many corners of Silicon Valley when I contacted those who are usually happy to talk. Many observers, investors, and analysts appeared stunned.Some wondered if this marked a buying opportunity. Others questioned the information DeepSeek was providing."I still think the truth is below the surface when it comes to actually what's going on," veteran analyst Gene Munster told me on Monday. He questioned the financials DeepSeek is citing, and wondered if the startup was being subsidised or whether its numbers were correct.The chatbot is "surprisingly good, which just makes it hard to believe", he said.Regardless, DeepSeek's sudden arrival is a "flex" by China and a "black eye for US tech," to use his own words.It was just last week, after all, that OpenAI's Sam Altman and Oracle's Larry Ellison joined President Donald Trump for a news conference that really could have been a press release.The event represented peak American bullishness on AI.
They announced Stargate, a joint venture that promises up to $500bn in private investment for AI infrastructure: data centers in Texas and beyond, along with a promised 100,000 new jobs.The US seemed to think its abundant data centers and control over the highest-end chips gave it a commanding lead in AI, despite China's dominance in rare-earth metals and engineering talent.Some have even seen it as a foregone conclusion that America would dominate the AI race, despite some high-profile warnings from top executives who said the country's advantages should not be taken for granted. The US may still go on to command the sector, but there is a sense that DeepSeek has shaken some of that swagger.Trump's words after the Chinese app's sudden emergence in recent days were probably cold comfort to the likes of Altman and Ellison. He called this moment a "wake-up call" for the American tech industry, and said finding a way to do cheaper AI is ultimately a "good thing".It is also worth noting that it was not just tech stocks that took a beating on Monday. Energy stocks did too. DeepSeek's arrival on the scene has upended many assumptions we have long held about what it takes to develop AI.Maybe that nuclear renaissance - including firing up America's Three Mile Island energy plant once again - won't be needed. Maybe it does not take so much capital, compute, and power after all.For now, the future of semiconductor giants like Nvidia remains unclear.
DeepSeek says its model was developed with existing technology along with open source software that can be used and shared by anybody for free.But WIRED reports that for years, DeepSeek founder Liang Wenfung's hedge fund High-Flyer has been stockpiling the chips that form the backbone of AI – known as GPUs, or graphics processing units.The company has said its models deployed H800 chips made by Nvidia. US policy restricting sales of higher-powered chips to China might get a second-look under the new Trump administration.OpenAI's Sam Altman was mostly quiet on X Monday. But very late in the day, he wrote that DeepSeek was "impressive… particularly around what they're able to deliver for the price"."We will obviously deliver much better models and also it's legit invigorating to have a new competitor!" he wrote.It was Sputnik that truly ushered in the space age. There, too, the US was caught off guard. How its tech sector responds to this apparent surprise from a Chinese company will be interesting - and it may have added serious fuel to the AI race.