Penka Hristovska
Published on: January 28, 2025 Senior Editor

A surprisingly efficient and powerful Chinese AI model, DeepSeek R1, is making waves in the tech world — and causing unease on Wall Street.

“DeepSeek R1 is AI’s Sputnik moment,” venture capitalist Marc Andreessen wrote in a Sunday post on social platform X, comparing the breakthrough to the 1957 satellite launch that ignited the Cold War space race between the Soviet Union and the United States.

The model R1 comes close to matching the performance of its more well-known competitors, such as OpenAI’s GPT-4, Meta’s Llama, and Google’s Gemini. The DeepSeek app has soared up app store charts, surpassing ChatGPT on Monday, with nearly two million downloads to date.

And all of this at just a fraction of the cost.

DeepSeek, a startup that was born just a year ago, claims it developed its base AI model with just $5.6 million, a staggering contrast to the hundreds of millions and potentially billions spent by US tech giants on their AI technologies.

This achievement is particularly remarkable given the United States’s ongoing efforts to limit China’s access to high-performance AI chips under the banner of national security.

DeepSeek revealed that its latest models were developed using Nvidia’s lower-performing H800 chips, which are still permitted for use in China, suggesting that cutting-edge performance doesn’t necessarily require the most advanced, high-performance hardware.

The model’s launch quickly sent shockwaves through the market, triggering a sharp selloff in US stocks on Monday morning. Nvidia, the top supplier of AI chips whose stock had more than doubled in value each of the past two years, plunged 12 percent in premarket trading. Shares of Meta and Google’s parent company Alphabet also dropped significantly, along with other tech giants like Oracle.

However, according to the Wall Street Journal, the model’s strict content restrictions on sensitive topics related to the Chinese government and its leadership have raised questions about its long-term viability as a serious industry contender.

Also, at the time of writing, the company has paused new subscriber registrations, citing an ongoing large-scale cyberattack.