Chinese AI Model Challenges US Tech Dominance, Impacting Global Markets
A Chinese-made artificial intelligence (AI) model, DeepSeek, has rapidly surged to the top of the Apple Store’s downloads, astonishing the tech industry and shaking investor confidence, leading to significant drops in the stock prices of several companies.
Released on January 20, 2025, the latest version of DeepSeek caught the attention of AI experts almost immediately, and within days, it had garnered widespread recognition from the broader tech community. US President Donald Trump himself commented on DeepSeek’s rise, calling it a “wake-up call” for US companies, stressing the need for the US to refocus on “competing to win” in the rapidly evolving tech space.
What has made DeepSeek so notable is its claim of being developed at a fraction of the cost of some of the leading AI models in the world, such as OpenAI’s GPT-4. DeepSeek reportedly uses fewer advanced chips, making it a more cost-effective option for AI development. This revelation has sent ripples through the tech industry, with Nvidia—the giant chip manufacturer—losing nearly $600 billion in market value on January 27, 2025, the largest one-day loss in US history. The news has had significant implications for the global tech market and has raised questions about the future of high-performance computing and chip production.
DeepSeek’s success also presents new challenges for the US government’s efforts to contain China’s rise as a tech superpower. One of the key measures implemented by Washington has been a ban on the export of advanced chips to China, a move aimed at limiting Beijing’s access to the hardware needed to develop cutting-edge AI models. However, despite these restrictions, DeepSeek’s success highlights China’s growing ability to innovate and create powerful AI technologies independently. DeepSeek’s development has further emphasized China’s ambitious push to shift its economy away from traditional manufacturing sectors such as textiles and furniture, toward high-tech industries like semiconductor production, electric vehicles, and AI.

What is DeepSeek?
At its core, DeepSeek is a free AI-powered chatbot, very similar in functionality to OpenAI’s ChatGPT. DeepSeek is designed to handle a variety of tasks such as answering questions, assisting with research, solving math problems, writing code, and even offering creative suggestions. Many of these tasks are performed with remarkable proficiency, and DeepSeek has been reported to be just as effective as OpenAI’s latest models in certain areas, including mathematics and coding.
DeepSeek operates using a “reasoning” model, which simulates the process of human reasoning by incrementally producing responses to problems or ideas. This allows the model to use less memory compared to other high-end models like OpenAI’s GPT-4, making it more cost-effective to deploy for various tasks. Despite its impressive capabilities, DeepSeek still faces some challenges in terms of the quality of its output, as AI systems like these often create content based on patterns and may inadvertently perpetuate biases present in their training data.
One of the most notable features of DeepSeek, however, is its design to avoid politically sensitive or controversial topics, a direct reflection of China’s censorship laws. For example, when asked about the Tiananmen Square massacre of 1989, DeepSeek did not provide any information on the event, citing its programming as an AI assistant meant to provide “helpful and harmless” responses. This censorship aspect has sparked concerns internationally, especially as it could hinder the model’s ability to operate effectively outside of China. Nonetheless, the company behind DeepSeek has ensured that the AI’s core model is trained on a wide range of accurate and reputable sources, while implementing a secondary layer of safeguards to prevent the dissemination of politically sensitive content.

The Development of DeepSeek
DeepSeek’s development has attracted attention not only for its technical capabilities but also because of the story behind its creation. The company was founded in December 2023 by Liang Wenfeng, a Chinese entrepreneur with a background in both finance and technology. Liang holds degrees in electronic information engineering and computer science from Zhejiang University and has long been involved in the world of quantitative trading. In fact, Liang is the CEO of High-Flyer, a hedge fund that leverages AI to analyze financial data for investment decisions. High-Flyer became the first quant hedge fund in China to raise more than 100 billion yuan ($13 million) in 2019. In the same year, Liang famously commented, “If the US can develop its quantitative trading sector, why not China?”
Liang’s views on China’s role in the global tech ecosystem are particularly important in understanding the significance of DeepSeek’s rise. He has been outspoken about China’s need to step away from being a follower in technology and to establish itself as a leader in innovation. DeepSeek’s success in challenging dominant players like OpenAI, which is valued at over $150 billion, fits into his vision for China’s future as a global tech innovator. According to Liang, the surprise surrounding DeepSeek’s rise stems from the perception that a Chinese company, traditionally seen as a follower, is now positioning itself as an innovator on the global stage. He has made it clear that China’s AI sector cannot remain a follower forever and that the true gap in the field is not between Chinese and American AI capabilities but between originality and imitation.
In addition to Liang’s leadership, DeepSeek’s development has been supported by strategic planning and technical ingenuity. One of the key factors in DeepSeek’s ability to build a powerful AI model at a lower cost is its reported use of Nvidia A100 chips, which have been banned from export to China since September 2022. The company is believed to have stockpiled these chips, possibly amassing up to 50,000 units, and paired them with cheaper, less sophisticated chips to create a highly efficient and cost-effective AI model. The innovative approach of using lower-cost resources has disrupted conventional thinking about what is required to build state-of-the-art AI models.

Impact on the Tech Industry and Global Markets
DeepSeek’s meteoric rise has had far-reaching implications for the global tech industry, particularly for US-based companies like Nvidia. The chipmaker’s massive loss in market value on January 27, 2025, highlights the deep uncertainty surrounding the future of high-performance chips and the role they play in advancing AI. DeepSeek’s success has demonstrated that AI models can be developed with fewer resources, causing many to question whether the hefty budgets of AI giants like OpenAI are sustainable in the long term. In fact, some analysts believe that the AI industry may have entered a new phase where cutting-edge technologies can be developed with limited computational resources, challenging the traditional models of AI development.
Nvidia’s stock price drop had a cascading effect on the broader tech market, with the Nasdaq experiencing a 3% decline. Nvidia’s market capitalization shrank dramatically, falling from $3.5 trillion to $2.9 trillion, while its position as the world’s most valuable company was overtaken by Apple and Microsoft. This shift has added further fuel to the ongoing debate about the future of the chip industry and the way forward for companies like Nvidia that have long dominated the AI hardware sector.
China’s Tech Rise and Global Reactions
In China, DeepSeek’s success has been hailed as a major win for the country’s technology sector and its broader ambitions to become self-reliant in critical technologies. State media has celebrated the model’s rapid rise, noting that US tech giants are “losing sleep” over the impact of DeepSeek. For many in China, DeepSeek represents the culmination of years of work in shifting from traditional manufacturing to more advanced technologies, with a growing focus on AI, electric vehicles, and semiconductor production. DeepSeek is seen as a success of China’s “Innovation 2.0,” a new era of technological leadership led by younger entrepreneurs.
However, experts caution that the success of DeepSeek could foster a sense of “tech isolationism” in China, further driving a wedge between the country’s tech industry and the rest of the world. While many view DeepSeek’s accomplishments as evidence of China’s increasing technological prowess, it also raises questions about global cooperation in the field of AI and whether such isolationist trends could ultimately hinder innovation and collaboration on the global stage.
Looking Ahead
DeepSeek’s rapid ascent is a reflection of the changing landscape of global AI development. As the company continues to make waves in the tech industry, it raises important questions about the future of AI, the role of the US in maintaining its technological dominance, and the shifting power dynamics in global innovation. While the implications for US companies like Nvidia and OpenAI are still unfolding, DeepSeek’s rise signals a new chapter in the AI race, one where cost-effective innovation may be just as important as high-end hardware and massive budgets.