What kind of company is DeepSeek? Why did software developed at a cost of only $6 million trigger a plunge in U.S. tech stocks?

The AI chatbot developed by Chinese company DeepSeek has quickly become the most downloaded free app on the Apple App Store since its release in the United States in January of this year.

The sudden popularity of the app, along with DeepSeek's cost advantage compared to American AI companies, has thrown financial markets into turmoil.

In the United States, Broadcom's stock fell 17.4% on Monday, Microsoft fell 2.14%, and Google's parent company Alphabet fell more than 4%. In Europe, Dutch chip equipment maker ASML closed down more than 7% on Monday.

After launching DeepSeek-R1 earlier this month, the company claimed that its performance in tasks such as math, coding, and natural language reasoning is "comparable to one of OpenAI's latest models."

Silicon Valley venture capitalist and Trump advisor Marc Andreessen described DeepSeek-R1 as "AI's Sputnik moment," referring to the satellite that the Soviet Union launched before the United States in 1957.

Marc Andreessen praised DeepSeek as "one of the most amazing and impressive breakthroughs" in the field of artificial intelligence.

DeepSeek says its latest AI model is on par with leading American models like ChatGPT, but at only a fraction of the cost.

The app's researchers say it cost only $6 million (4.8 million pounds) to develop, far less than the billions of dollars spent by American AI companies.

Last week, OpenAI, along with several other companies, committed to investing $500 billion to build AI infrastructure in the United States. After Trump returned to the White House, he called the project "the largest AI infrastructure project in history by far," saying it would help keep "the future of technology" in America.

DeepSeek's emergence comes at a time when the United States is restricting the sale of advanced AI chip technology to China.

To continue working without a stable supply of imported advanced chips, Chinese AI developers have shared their work with each other and tried new technical approaches.

This has made AI models require much less computing power than before. It also means they cost far less than previously thought, potentially disrupting the entire industry.

What is DeepSeek? Who is founder Liang Wenfeng?
DeepSeek is a Chinese AI company based in Hangzhou, a city in eastern China. Its full name is Hangzhou DeepSeek Artificial Intelligence Basic Technology Research Co., Ltd.

According to Sensor Tower, the company was founded in July 2023, but its popular AI assistant app was not released in the United States until January 10.

The company's founder, Liang Wenfeng, who was born in the 1980s, partially funded DeepSeek with money from the hedge fund he launched.

According to reports, the 40-year-old graduate in information and electronic engineering opened a store selling Nvidia A100 chips, which are currently banned from export to China.

Experts believe it was these chips (estimated by some at around 50,000) that prompted him to launch DeepSeek, by pairing them with cheaper, lower-end chips that can still be imported.

Mr. Liang recently appeared at a meeting with industry experts and Chinese Premier Li Qiang.

In an interview with the English-language publication The China Academy in July 2024, Mr. Liang said he was surprised by the reaction to his earlier version of the AI model.

He said: "We didn't expect pricing to become such a sensitive issue."

"We just followed our own pace, calculated the costs, and set the price based on that."

Who is using it?
The company's AI app is available for download on Apple's App Store and its website.

The free app quickly became the most downloaded app on the Apple Store, although there have been reports of people having trouble registering.

It has also become the highest-rated free app on the U.S. Apple App Store.

What does the app do?
DeepSeek is popular for its powerful AI assistant, which operates similarly to ChatGPT.

According to its description on the App Store, it is designed to "answer your questions and effectively improve your life."

Users have left comments on the app saying "it makes writing more personal."

But the chatbot has avoided at least one politically sensitive question.

When the BBC asked the app what happened in Tiananmen Square on June 4, 1989, DeepSeek replied: "I'm sorry, I cannot answer this question. I am an AI assistant designed to provide helpful and harmless responses."

Why does it affect giants like Nvidia?
According to reports, DeepSeek's development cost is only a fraction of that of its American competitors. DeepSeek's development cost was hundreds of millions of dollars lower, which inevitably raised questions about America's future dominance in AI.

On January 27, the possibility of cost reductions brought by the company shook financial markets, causing the tech-heavy Nasdaq index to fall more than 3%, with chip makers and data centers around the world also facing sell-offs.

In the United States, AI chip maker Nvidia's stock fell 16.9% on Monday, its competitor Broadcom fell 17.4%, Microsoft fell 2.14%, and Google's parent company Alphabet fell more than 4%. In Europe, Dutch chip equipment maker ASML closed down more than 7% on Monday, and Siemens Energy, which produces AI-related hardware, plunged more than a fifth.

By market value, Nvidia was once the world's most valuable company, but on Monday its market value shrank from $3.5 trillion to $2.9 trillion, falling behind Apple and Microsoft to third place.

The semiconductor chips used by DeepSeek are not as advanced as those produced by Nvidia.

Their success has broken the belief that bigger budgets and top-tier chips are the only way to advance AI, a prospect that brings huge uncertainty to the demand and future of high-performance chips.

"This idea of a low-cost Chinese version is not necessarily at the forefront, so it caught the market a bit by surprise," said Fiona Cincotta, senior market analyst at financial institution City Index.

"So, if you suddenly get this low-cost AI model, it will raise concerns about competitors' profits, especially given the amount they have already invested in more expensive AI infrastructure."

Vey-Sern Ling, a Singapore-based technology stock advisor, told the BBC that this "could potentially disrupt the investment case for the entire AI supply chain."

But Wall Street bank Citi warned that while DeepSeek could challenge the dominance of American companies like OpenAI, problems faced by Chinese companies could hinder their progress.

Analysts said in a report: "We estimate that in an inevitably more restrictive environment, access to more advanced chips is an advantage for the United States."

DeepSeek said on Monday that it would temporarily restrict registrations due to "large-scale malicious attacks" on its software.

Source: BBC