The emergence of DeepSeek, a Chinese-made AI app, sent shockwaves through the US tech market. Its claim to achieve comparable performance to leading AI models at a fraction of the cost triggered a significant selloff in US tech stocks, particularly impacting Nvidia, the leading chipmaker for AI. This event highlighted concerns about the future of American AI dominance and the potentially inflated valuations of US AI companies.

President Trump, while acknowledging the situation as a ‘wake-up call,’ expressed optimism, suggesting that DeepSeek’s cost-effectiveness could ultimately benefit the US. This sentiment reflects the broader market’s initial overreaction and subsequent recovery. The initial market dip was fueled by investor uncertainty regarding the implications of a potentially more competitive and affordable AI landscape. However, the market quickly stabilized, with major indices recovering within a day.

DeepSeek’s success is attributed to its innovative approach to AI model training, utilizing far less computing power and significantly reducing costs compared to its rivals. This achievement is partially due to increased collaboration and experimentation among Chinese AI developers in response to US restrictions on advanced chip technology. This cost reduction has the potential to democratize AI, allowing broader adoption across various industries. However, skepticism remains. Elon Musk, for instance, questioned DeepSeek’s claimed resource efficiency.

Experts offer varying perspectives. While some, like Janet Mui of RBC Brewin Dolphin, noted the initial sell-off as a natural response to uncertainty, others see a positive outlook. Ion Stoica of Databricks argues that the lower cost could accelerate AI adoption and market growth. Concerns regarding cybersecurity and data privacy are also being raised following the app’s rapid growth. This unprecedented event underscores the intensifying global competition in the AI sector and challenges the assumptions underlying the current US AI market valuation.