The AI landscape witnessed a seismic shift recently as a Chinese AI application, DeepSeek, has rapidly gained popularity, sending ripples of concern through US and European markets. This unexpected surge has led to a significant drop in share prices of major AI players, raising questions about the future of AI development and competition.
On Monday, January 27, 2025, shares of Nvidia, a leading AI chip manufacturer, plummeted by over 16%. This market reaction was largely attributed to the surging popularity of DeepSeek, a Chinese AI chatbot developed at a fraction of the cost compared to its US counterparts. The success of DeepSeek raises concerns about the potential disruption of the AI industry and the scale of investments being made by US firms.
DeepSeek is an AI chatbot developed in China. What makes it unique is the reported low cost of its development. It quickly became the most downloaded free app in the US, surpassing many established competitors.
These advancements have resulted in AI models that challenge existing market dynamics. DeepSeek-R1, for instance, claims to offer performance on par with OpenAI's advanced models in tasks such as math, coding, and natural language reasoning.
Marc Andreessen, a prominent Silicon Valley venture capitalist, has described DeepSeek-R1 as "AI's Sputnik moment", a reference to the Soviet Union's launch of Sputnik in 1957, which caught the US off guard and ignited the space race. This highlights the potential for DeepSeek to reshape the AI landscape.
The rapid ascent of DeepSeek has caused significant unease in financial markets.
Fiona Cincotta, a senior market analyst at City Index, noted that the emergence of a low-cost AI model raises concerns about the profitability of rivals, particularly given the substantial investments they have already made in AI infrastructure.
Vey-Sern Ling, a technology equity adviser based in Singapore, suggested that DeepSeek could potentially disrupt the entire AI supply chain.
While DeepSeek poses a potential challenge, Wall Street banking giant Citi suggests that US companies like OpenAI still hold advantages, particularly in access to advanced chips within a restrictive environment.
Additionally, DeepSeek reported experiencing "large-scale malicious attacks" on its software, leading to temporary registration limits. According to their statement, these measures will "ensure continued service".
DeepSeek was founded in 2023 by Liang Wenfeng, an information and electronic engineering graduate based in Hangzhou, China.
The rise of DeepSeek indicates a potential shift in the AI landscape, with new players and innovative approaches challenging the dominance of established US companies. While uncertainties remain, this development underscores the importance of continuous innovation and adaptation in the rapidly evolving world of artificial intelligence.
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