DeepSeek’s announcement about its AI model has shaken the industry. The company claims its R1 model was developed at a fraction of the cost of its rivals. US President Donald Trump described DeepSeek’s rise as “a wake-up call” for the US tech industry.
This development has caused significant ripples across markets. Shares of major tech companies like Nvidia dropped sharply, with Nvidia losing nearly $600 billion in market value.
A Game-Changer in AI Development
DeepSeek claims its AI model costs far less to create compared to competitors. Its R1 model was reportedly trained for $6 million—substantially cheaper than the billions spent by rivals. If accurate, this raises questions about the future of US dominance in AI and how American companies allocate their resources.
DeepSeek’s app quickly became the most downloaded free app in the US within a week of its release. Speaking about this, Trump said the ability to develop cheaper yet effective models could be positive for the US. He maintained that the US would remain a leader in the field despite these developments.
However, DeepSeek has sparked concerns in several countries over cybersecurity risks. Australian science minister Ed Husic urged caution, highlighting issues related to data, privacy, and quality.
The Impact on Global Markets and AI Progress
DeepSeek’s technology uses the DeepSeek-V3 model, which requires far less computing power. This model relies on just 2,000 specialized chips, compared to the 16,000 chips used by leading competitors. Chinese developers have adapted to chip restrictions by collaborating and innovating new approaches. These advancements could lower costs across the AI industry.
The shock to US markets on Monday saw the FTSE 100 index rise slightly on Tuesday. However, Japanese tech stocks, including those of companies like Softbank, fell, dragging the Nikkei 225 down by 1.4%. Many Asian markets remained closed for the Lunar New Year.
A Rising Force in AI
DeepSeek was founded in 2023 by Liang Wenfeng in Hangzhou, China. Liang, an electronic engineering graduate, also established the hedge fund backing the company. He has gained attention for his innovative approach to AI, despite facing skepticism. In an earlier interview, he expressed surprise at the focus on pricing. He explained the company merely followed its cost calculations to set fair prices.
The R1 model’s performance has impressed some, including OpenAI CEO Sam Altman, who acknowledged its affordability. Marina Zhang, a professor at the University of Technology Sydney, noted that DeepSeek’s model shows how software efficiency can compensate for hardware limitations.
However, DeepSeek’s claims face skepticism. Some experts, including Elon Musk, have questioned whether the company has used more advanced chips than publicly acknowledged. Despite this, DeepSeek’s rise signals a new chapter for the AI industry, potentially accelerating adoption and reshaping global competition.