On Monday, U.S. tech stocks experienced a decline after a lesser-known Chinese AI startup claimed it could compete with established AI models like ChatGPT at a significantly lower cost.

DeepSeek, which is based in Hangzhou and was founded in 2023, quickly rose to the top of Apple’s App Store’s free app rankings with the launch of its open-source AI model, which it asserts rivals the outputs of OpenAI. The surge in interest led to its website facing outages.

The stocks of several tech firms, including prominent AI chip maker Nvidia, fell sharply following this announcement.

“Tech stocks are clearly facing immense pressure, primarily due to Nvidia, as the market perceives DeepSeek as a serious competitor to U.S. tech’s dominance in the AI landscape,” remarked Daniel Ives, an analyst at Wedbush Securities.

What is DeepSeek?

DeepSeek operates as an AI laboratory, claiming that its AI models, DeepSeek-V3 and DeepSeek-R1, are comparable to the leading models developed by OpenAI, the creator of ChatGPT, and Meta, Facebook’s parent company.

Chinese corporate records indicate that the principal shareholder is Liang Wenfeng, who is also a co-founder of the hedge fund High-Flyer.

Why is DeepSeek causing a stir in the tech industry?

DeepSeek claims that training its DeepSeek-V3 model costs less than $6 million, whereas OpenAI reportedly spent over $100 million to train the latest version of ChatGPT, as per Wired.

Analysts acknowledge the technology’s remarkable nature, particularly since DeepSeek asserts it utilized less sophisticated chips to develop its AI models.

The previous Biden administration had imposed restrictions on the export of some advanced AI chips.

“In the wrong hands, advanced AI systems can create serious national security challenges, including facilitating the development of weapons of mass destruction, enhancing offensive cyber operations, and contributing to human rights violations like mass surveillance,” stated an earlier Biden administration announcement.

However, DeepSeek maintains that the chip restrictions have not hindered its progress, as it developed a model costing 20 to 50 times less than OpenAI’s o1 model for various tasks.

“We anticipated rapid advancements in AI since the public debut of ChatGPT, but it was a surprise for the U.S. when significant progress came from China,” Damian Rollison, director of market insights for AI marketing firm SOCi, shared in a statement to YSL News.

Skeptics have challenged the startup’s claims. Scale AI CEO Alexandr Wang argued in a recent CNBC interview that DeepSeek utilized advanced Nvidia chips. Additionally, Bernstein analysts suggested that the overall training expenses were greater than what DeepSeek reported.

DeepSeek has yet to respond to YSL News’ request for comments.

How has the stock market reacted to DeepSeek?

Nvidia’s stock closed down 17%, resulting in a staggering loss of nearly $600 billion in market capitalization, marking an unprecedented decline in a single day.

Oracle, which collaborated with SoftBank and OpenAI on the Stargate AI initiative announced by former President Donald Trump last week, fell by nearly 14%.

On the whole, the S&P 500 ended the day down by 1.5%, the Dow Jones Industrial Average rose by 0.7%, and the tech-centric Nasdaq composite dropped by 3.1%.

Is the DeepSeek app available for free?

DeepSeek’s app utilizes the DeepSeek-V3 model, which the startup promotes as employing “cutting-edge” AI that meets global benchmarks comparable to top international models.

Launched on January 10, the app quickly ascended to the top of Apple’s App Store’s “top free apps” list.

Are there any security worries?

DeepSeek is not the first China-linked app to capture attention on the Apple App Store; earlier this month, RedNote, a rival to TikTok, also topped the social networking app charts.

Experts predict that DeepSeek, even more so than TikTok and RedNote, will provoke security concerns, according to SOCi’s Rollison.

“It seems that the ongoing AI arms race could lead to geopolitical challenges beyond mere economic rivalry, impacting the future of these transformative technologies,” Rollison remarked.

DeepSeek faces cyberattacks

On Monday, DeepSeek’s website indicated that new user registration might be unavailable “due to extensive malicious attacks” on its services. However, registered users can log in as usual.

Trump labels DeepSeek a ‘wake-up call’

Former President Trump stated that the innovation from DeepSeek should serve as a “wake-up call” for American industries, emphasizing the need for a strong focus on competitive strategies.

He perceived the new technology as a “positive development” due to its cost-effectiveness.

“We’re always at the forefront with ideas. So I would view this as a positive change, as it allows for substantial savings while striving for high-quality solutions,” Trump said during a speech in Florida on Monday.

What is DeepSeek’s Janus Pro AI model?

On Monday, DeepSeek also unveiled a new open-source AI model for image generation called Janus-Pro-7B.

The company claims this model surpasses Stability AI’s Stable Diffusion and OpenAI’s DALL-E 3, which are also known for generating images from text prompts.

(This story has been updated with new information.)

Contributing: Reuters