A recent development from Chinese AI startup DeepSeek has sent shockwaves through Silicon Valley. DeepSeek’s newly launched AI model has overtaken OpenAI’s ChatGPT to rank first in downloads on Apple’s App Store in the U.S. This has raised concerns about the dominance of U.S. Big Tech in the global AI race, particularly as DeepSeek’s generative AI service offers performance comparable to ChatGPT without relying on advanced chips and at a significantly lower cost.

This article explores the market impact, ripple effects on Big Tech stocks, and the sustainability of DeepSeek’s disruptive AI model.

DeepSeek Tops the Charts
According to Bloomberg on the 27th, DeepSeek's AI assistant surpassed ChatGPT to claim the top spot on the U.S. Apple App Store’s free app downloads, just a week after the launch of its inference AI model, DeepSeek-RI. Building on its earlier DeepSeek-V3 model, DeepSeek-RI has been reported to outperform OpenAI's September-released inference AI model, “o1,” in some performance tests. Consumer preference for DeepSeek has been clearly demonstrated through app downloads.

Marc Andreessen, a prominent Silicon Valley venture capitalist, described this as “the Sputnik moment of AI,” calling DeepSeek-RI one of the most remarkable innovations he has seen. He likened it to the Soviet Union’s satellite launch in the late 1950s, signaling a groundbreaking technological leap.

Market Reaction: Big Tech Panic
The market reacted strongly. On the New York Stock Exchange, the tech-heavy Nasdaq index plummeted by 612.47 points (-3.07%) to close at 19,341.83. The S&P 500 dropped 88.96 points (-1.46%) to 6,012.28, while the Dow Jones Industrial Average rose 289.33 points (+0.65%) to 44,713.57.

AI-related stocks, which have driven the U.S. stock market rally over the past two years, took a major hit. NVIDIA plunged 16.97%, Broadcom fell 17.40%, AMD declined by 6.37%, ASML by 5.75%, Alphabet (Google’s parent company) by 4.03%, and Microsoft by 2.14%.

Low-Cost Model Sparks Concerns
Tech experts and financial markets are alarmed by DeepSeek’s ability to produce an AI model comparable to those from U.S. Big Tech at a fraction of the cost. DeepSeek reportedly trained its model using a low-spec chip developed by NVIDIA to circumvent U.S. export restrictions and kept training costs under $6 million—one-tenth of what companies like Meta spend on their AI models.

This is significant in an industry requiring massive investments. While Meta plans to spend over $65 billion on AI development this year, OpenAI CEO Sam Altman has said that billions of dollars are needed to support the chips powering data centers. Moreover, AI operations require vast amounts of energy, leading Big Tech companies to acquire nuclear power plants to meet their energy demands.

Another concern is the apparent ineffectiveness of U.S. government regulations on China’s AI development. In October 2022, the U.S. government banned the export of high-performance GPUs and semiconductor manufacturing equipment to China, and former President Joe Biden further tightened restrictions on AI computer chips in his final week in office.

Questions About Sustainability
While recognizing DeepSeek’s disruptive potential, market analysts suggest that this achievement alone may not be enough to dethrone U.S. Big Tech. Keith Lerner, an analyst at Truist Financial, commented, “DeepSeek’s model has prompted investors to question how much U.S. companies are spending on AI and whether that spending will translate into profits. However, there is no doubt that U.S. companies will remain at the forefront due to their significant investments in AI data and resources.”

CNN highlighted uncertainties surrounding DeepSeek’s credibility, noting that the company has not disclosed the actual costs of training its model or the typically high research and development expenses.

Additionally, while DeepSeek-RI boasts impressive bilingual capabilities in English and Chinese, its limited responses on politically sensitive topics related to China could deter some consumers.

By Hongyong Park

<Hongyong Park>