A Young Chinese AI Startup Rocks the US Tech Market
A young Chinese AI startup, DeepSeek, has sent shockwaves through the US technology sector, sparking a massive rout in the market, as its particularly competitive and cost-effective models have raised doubts about the hundreds of billions of dollars being spent by the United States’ biggest tech companies on artificial intelligence.
DeepSeek’s emergence has also made investors question the hype around Nvidia’s chips and has had a ripple effect on the market, impacting shares of power producers who were poised to benefit from AI data center demand.
The company, founded in May 2023 by Liang Wenfeng, has developed a free, open-source large language model that took only two months to develop and less than $6 million to build. The model, known as R1, was released in late December and outperformed Open AI’s latest o1 model in many third-party tests.
DeepSeek’s approach to AI is different, as it generates a “chain of thought” before delivering the final answer, enhancing the accuracy of its responses. The company’s R1 model has gained significant attention, with Scale AI’s CEO, Alexandr Wang, touting its competitiveness against the best products from US megacap tech giants.
Wang’s endorsement has further fueled the hype around DeepSeek, with many investors and experts, including Marc Andreessen and Chamath Palihapitiya, praising the company’s model. The buzz around DeepSeek has also sent its mobile app to the top of Apple’s app store download charts, surpassing pricier models such as OpenAI’s ChatGPT.
As a result, US futures were down big overnight Sunday, and investors woke up to a sea of red on Monday morning. The tech-heavy Nasdaq Composite was down more than 3% on Monday, dragged down by megacap names. Nvidia, the AI darling and chip producer, saw its shares tumbling 16.9% for its worst day since March 2020. Other chipmakers and power providers also took a hit, as the market reacted to the sudden rise of DeepSeek.
