The tech market has been thrown into chaos as a discount Chinese AI chatbot, DeepSeek has launched a free assistant which uses less data at a lower cost compared to US tech giants, such as Nvidia.
The DeepSeek app is free to use and uses lower costs chips and uses less data than Western competitors.
The Chinese startup has now overtaken ChatGPT in Apple Store downloads, this could be a turning point over how much investment is actually needed for AI.
Silicon Valley venture capitalist Marc Andreessen said that the Chinese AI chatbot is “one of the most amazing and impressive breakthroughs I’ve ever seen — and as open source, a profound gift to the world.”
The Financial Times has said that Wall Street tech stocks are heading for a $1 trillion sell off as the startup Hangzhou which is behind DeepSeek has claimed that researchers spent less than $6 million to train the chatbot.
Sky News reported, Jon Withaar, a senior portfolio manager at Pictet Asset Management said, “We still don’t know the details and nothing has been 100% confirmed in regards to the claims, but if there truly has been a breakthrough in the cost to train models from $100m-plus to this alleged $6m number, this is actually very positive for productivity and AI end users as cost is obviously much lower meaning lower cost of access.”
In early morning training Nvidia shares fell 11%, Google owner Alphabet dropped 3.3% and Met platforms are down by 3.1%.
“There is a new AI challenger in town and investors are spooked at what they’ve discovered,” says Russ Mould, AJ Bell investment director.
“China’s DeepSeek last week revealed how to build a large language model on a budget that can learn and improve without human supervision.”
Mould said that the result of DeepSeek’s AI creation uses less computing power, “The companies that enjoyed first-mover advantage will now be under pressure to launch something even better or be left behind.
“It’s natural evolution when someone launches a product or service that sees strong demand, someone else will always try to come along with something cheaper to undercut the market leaders.”
Mould explained that this breakthrough development is a shift in the global AI sphere for Chinese firms.
He said, “The US government both under Donald Trump and previously under Joe Biden have been trying to stop China from accessing Western technology.
“That strategy might have backfired as it looks to have encouraged China to ramp up efforts to build its own technology and we’re now seeing evidence that the country is making waves.”
Later this week Silicon Valley tech giants such as Microsoft and Meta will report their financial results on Wednesday and on Thursday Apple will release theirs.
Susannah Streeter, the head of money and markets at Hargreaves Lansdown said, “There’s a lot riding on this week’s earnings reports for big tech, with updates due from Meta, Microsoft, Apple and Tesla. There’s a lot of upside already sewn into expectations, which leaves plenty of room for disappointment.”
