Source: Yahoo Finance

What is DeepSeek?

DeepSeek is a free AI chatbot that works much like the famous ChatGPT. It helps users with tasks like answering questions, summarizing text, and even coding. What makes it stand out is its efficiency—reports suggest it performs as well as OpenAI’s o1 model in reasoning and math but was built at a fraction of the cost.

Unlike top-tier AI models that rely on expensive chips, DeepSeek was trained for just $6 million compared to the $100 million-plus spent on GPT-4. Its founder, Liang Wenfeng, stockpiled Nvidia A100 chips before the U.S. banned their export to China and combined them with cheaper hardware to build a powerful yet cost-effective AI system.

Why Did DeepSeek Become So Famous?

DeepSeek gained fame almost overnight due to its unexpected performance and cost-effectiveness. AI experts were initially impressed with its reasoning abilities, and as word spread, it caught the attention of the entire tech industry.

Investors were shocked that a Chinese company could build a model comparable to top Western AI firms without access to cutting-edge hardware. Its success also raised concerns about China’s growing influence in AI, despite U.S. restrictions aimed at slowing its progress. Therefore, DeepSeek can be viewed as a wakeup call for American companies that there can be other major AI players present.

Market Reaction and What Will Follow

DeepSeek’s rise sent shockwaves through the tech world, particularly in the semiconductor industry. Nvidia, the leading supplier of AI chips, saw its stock value plummet by a staggering $600 billion in a single day—the biggest one-day drop in U.S. history. Investors panicked as DeepSeek proved that high-end chips might not be essential for cutting-edge AI. The Nasdaq dropped over 3% on January 27, reflecting growing uncertainty about the future of AI hardware and the dominance of U.S. tech giants.*

Nvidia’s CEO, Jensen Huang, personally lost $21 billion due to the crash, while tech billionaires collectively saw nearly $100 billion wiped out. DeepSeek’s breakthrough highlights China’s ability to innovate despite trade restrictions, signaling a major shift in the AI race and global technology landscape.

After the initial turmoil passed, technology began to recover. It was partially due to opinions that DeepSeek can be viewed as a competition that has the potential to push other companies to decrease costs connected to AI development while maintaining the quality of their models. Therefore, investors should welcome competition at the end of the day as it brings more effectiveness to the market.

* Past performance is no guarantee of future results.