DeepSeek’s bold claim about developing its AI model at a fraction of its competitors’ cost has sent shockwaves through the AI sector. US President Donald Trump called the company’s rise “a wake-up call” for American tech firms after its AI model disrupted Wall Street.
Shares of major tech companies, including Nvidia, plunged, with Nvidia losing nearly $600 billion in market value. The industry was particularly stunned by DeepSeek’s assertion that its R1 model was developed for a fraction of the cost of rival models. This raises questions about the future of US dominance in AI and the size of investments needed to maintain it.
DeepSeek has quickly gained popularity, becoming the most downloaded free app in the US within a week of its launch. In response to this development, Trump suggested that cost-efficient innovation could benefit the US. “If it can be done cheaper and achieve the same result, that’s positive for us,” he said aboard Air Force One. He also expressed confidence that the US would remain a leading force in AI.
Cybersecurity and Cost Controversies
Despite its success, DeepSeek has sparked cybersecurity concerns in some countries. Australian science minister Ed Husic urged caution, stating, “Many questions need answers regarding quality, consumer preferences, data, and privacy management.”
DeepSeek operates on the open-source DeepSeek-V3 model, reportedly trained for about $6 million—far less than the billions spent by competitors. However, this claim is contested by industry experts. The emergence of DeepSeek coincides with US restrictions on exporting advanced chip technology to China. To adapt, Chinese developers have shared resources and adopted innovative methods, resulting in AI models that require fewer resources and cost far less to produce.
The dramatic drop in costs could reshape the AI industry. DeepSeek’s success has already unsettled global markets. On Monday, US markets were rattled, though the UK’s FTSE 100 index showed resilience with a 0.46% rise. In Asia, shares of Japanese AI-related firms like Advantest and SoftBank fell sharply, contributing to a 1.4% drop in the Nikkei 225 index. Meanwhile, Chinese markets remain closed for the Lunar New Year until February 5.
DeepSeek’s Rapid Rise and Industry Impact
DeepSeek was founded in 2023 by Liang Wenfeng, an engineer and hedge fund founder, in Hangzhou, China. Liang revealed he was surprised by the sensitivity surrounding pricing, explaining that the company simply calculated costs and set prices accordingly. After launching the R1 model, DeepSeek claimed its performance rivaled leading US models in tasks such as math, coding, and language reasoning—all while maintaining significantly lower costs.
Notable figures like OpenAI’s CEO Sam Altman praised DeepSeek’s achievements, calling it “an impressive model for the price.” However, he emphasized that OpenAI would continue delivering superior models. Marina Zhang, a University of Technology Sydney professor, noted that DeepSeek’s success highlights how software efficiency can offset hardware limitations.
Ion Stoica, co-founder of Databricks, suggested that DeepSeek’s cost reduction could accelerate AI adoption. “Lower costs could expand the market faster, increasing overall market value,” he said.
Yet, doubts remain. Some experts, including Elon Musk, have questioned DeepSeek’s claims. Musk pointed out rumors that DeepSeek possesses 50,000 Nvidia chips, contradicting its narrative of limited hardware access. As the debate unfolds, DeepSeek continues to challenge the global AI landscape with its bold innovation and cost-efficiency.
