Will China's AI Startup DeepSeek Break US Tech Dominance?

Chinese AI startup DeepSeek has rocked global tech stocks this week with a cutting-edge model it says rivals those produced by US giants at a lower cost, raising doubts about US hegemony in the sector and the high valuations of its biggest tech companies.

According to the Financial Times, DeepSeek has outperformed its US rivals using far fewer computing resources, wiping $1 trillion off the US tech stock market.

At the same time, Chinese AI startup DeepSeek suffered a website outage on January 27 after its AI tool became the top-rated free app on Apple’s App Store in the US.

DeepSeek offers free AI models that rival those offered by US giants OpenAI and Meta, which charge users monthly subscriptions of up to $200.

In contrast, Bloomberg said that Microsoft and OpenAI are investigating whether DeepSeek obtained data from OpenAI tech in an unauthorized manner.

Strong Competitor

After its launch on January 10, the Chinese AI startup DeepSeek caused widespread turmoil within the tech community, after it succeeded in topping the list of the most downloaded apps on the Apple Store in the U.S. and the UK within a few days of its launch on iPhone devices.

Liang Wenfeng, who launched his DeepSeek project just two years ago, has today become a strong competitor to apps such as ChatGPT from OpenA, challenging the US hegemony in the tech sector.

DeepSeek also succeeded in entering the list of the most downloaded apps on the Google Play Store for Android phones.

One strategist indicated that this development shows the extent of the fragility that still exists in the AI trading market, which raises questions about the ability to compete at a lower cost with models developed by large US firms, led by OpenAI and Meta.

DeepSeek noted that its latest model was trained in just two months with a budget of $5.5 million, a modest budget for training AI models.

It also noted that its model used a set of Nvidia H800 processor chips, which were recently banned from export to China by the US Department of Commerce.

The biggest loser was Nvidia, the world's largest company, which fell by about 18% on Monday, causing a loss of about $560 billion in its market value, making it the largest one-day drop in a company's stock in the history of the US stock market.

DeepSeek's success confirms that China has become a strong competitor in the field of AI, combining engineering efficiency and low costs to develop high-performance AI models.

This success also indicates the possibility of major companies re-evaluating their spending policies and investing heavily in the field of AI, which may reshape the map of competition in the coming years.

According to a report by the China Academy of Information and Communications Tech, China’s AI industry is rapidly growing, now responsible for 36% of all AI models globally, making it the second-largest contributor after the United States, and these models cover a variety of apps such as programming and mathematics.

As the industry continues to evolve, Chinese companies are expected to play a greater role in shaping the future of AI.

The new Chinese app has been praised by prominent experts, such as Dimitris Papailiopoulos, principal researcher at Microsoft’s AI Frontiers research lab, who described it as built on amazing geometric simplicity.

He explained that DeepSeek focused on providing precise answers rather than explaining every logical step, which helped it reduce computing time while maintaining high efficiency.

US Hegemony

Days before DeepSeek went viral, US President Donald Trump and tech giants — SoftBank CEO Masayoshi Son, OpenAI CEO Sam Altman, and Oracle CTO Larry Ellison — unveiled ‘Stargate’, a plan to maintain US hegemony in emerging tech.

The announcement comes on Trump’s second day in office, after he reversed an executive order issued by his predecessor Joe Biden on AI that was intended to reduce the risks it poses to consumers, workers, and national security.

Trump said the new project would spend at least $500 billion building AI infrastructure and create 100,000 American jobs almost immediately, calling it the largest AI infrastructure project in history.

Meta, meanwhile, announced plans a few days ago to increase its capital spending on AI projects by 50% this year, to nearly $65 billion.

Investment in AI has surged since OpenAI launched ChatGPT in 2022, as companies across industries seek to integrate the technology into their products and services.

Later, Trump addressed the implications of the meteoric rise of China’s DeepSeek, saying the release of the technology was a wake-up call for American industry, and that we must focus hard on competing with China in AI.

“In the very near future, we will be imposing tariffs on the production of chips and semiconductors in order to bring these essential goods back to the United States,” Trump said during a speech to Republican lawmakers in Florida on Jan. 27.

“Last week, I issued an executive order reversing Biden’s devastating AI regulations, so AI companies can focus again on being the best,” he added.

As a candidate in 2016, Trump promised to introduce a $1 trillion AI infrastructure bill to Congress but never did.

He also talked about the issue frequently during his first term, from 2017 to 2021, but made no major investment.

White House AI czar David Sacks said DeepSeek’s progress showed it was going to be a very competitive race, accusing the Biden administration of obstructing US companies.

“There’s substantial evidence that what DeepSeek has done here is distilled the knowledge from OpenAI’s models, and I don’t think OpenAI is very happy about that,” he said.

Marc Andreessen, a prominent technology investor, likened DeepSeek’s success to a ‘Sputnik moment’, referring to the Soviet Union’s launch of the first satellite in 1957, a move that alarmed the West at the time and prompted it to accelerate technological innovation.

Alexander Wang, the founder and CEO of Scale AI, wrote to Trump last week under the headline, “America must win the AI war.”

In an attempt to reassure markets and investors, Sam Altman expressed his admiration for the low-cost AI model launched by China’s DeepSeek, predicting that much better models could be made.

“The world will want to use a lot of AI, and will be really amazed by the next-generation models that are coming,” he added.

Tech Competition

The tech competition between the U.S. and China has escalated rapidly in recent years, as Washington has remained at the forefront in terms of innovation, while Beijing has been able to improve and develop these technologies through distinguished local cadres, strengthening its position as a strong competitor in various fields such as smartphones, electric vehicles, and AI.

With the expansion of the use of AI, US concerns about the growth of Chinese capabilities in this field have escalated, prompting it to impose strict restrictions on the export of advanced tech.

The U.S. has banned the export of advanced semiconductor technologies to China, and imposed restrictions on the sales of advanced AI chips from Nvidia to others.

This competition was not just a commercial, but has developed into a geopolitical conflict, as the U.S. seeks to maintain its technological superiority, while China tries to reduce its dependence on US tech and develop its internal capabilities.

Although innovation and creativity often come from the U.S., as it is a fertile ground for new ideas and pioneering technologies, China has emerged as a pivotal power capable of transforming these innovations into practical products on a large scale.

China aims to become a leader in AI by 2030, with tens of billions of dollars planned for investment in the field over the coming years.

DeepSeek’s success shows that Chinese companies are beginning to overcome the obstacles they face.

The rapid success has also propelled DeepSeek to the top of the trending topics on Weibo, China’s version of X.

In this context, Michael Wooldridge, a professor of the foundations of AI at the University of Oxford, told the Guardian that it is not unlikely that data entered via DeepSeek will be shared with the Chinese government.

“We’ve seen time and again how Beijing weaponises its tech dominance for surveillance, control and coercion, both domestically and abroad,” said Ross Burley, a co-founder of the Centre for Information Resilience.

Some lawmakers have also raised concerns about the Chinese app’s access to American users.

“The U.S. cannot allow CCP models like Deepseek to risk our national security and leverage our tech to advance their AI ambitions,” said Rep. John Moolenaar, a Missouri Republican.

“We must work to put stronger export controls on technologies critical to Deepseek’s AI infrastructure,” he added.