REPORT: Why Chinese AI startup has tech industry freaking out, sent markets plunging

1

For ads-free news, click here.

From Fox Business: The latest artificial intelligence (AI) models launched by Chinese startup DeepSeek have spurred turmoil in the technology sector following its emergence as a potential rival to leading U.S.-based firms.

DeepSeek wrote in a paper last month that it trained its DeepSeek-V3 model with less than $6 million worth of computing power from what it says are 2,000 Nvidia H800 chips to achieve a level of performance on par with the most advanced models from OpenAI and Meta.

Those chips are less advanced than the most cutting edge chips on the market, which are subject to export controls, though DeepSeek claims it overcomes that disadvantage with innovative AI training techniques. DeepSeek’s AI assistant, which is powered by the DeepSeek-V3 model, surpassed OpenAI’s ChatGPT as the top-rated free application in the Apple App Store in the U.S.

The China-based firm’s emergence has raised questions about leading U.S. tech companies investing billions of dollars in advanced chips and large data centers used to train AI models. It also serves as a “Sputnik moment” for the AI race between the U.S. and China following the perception that the U.S. had an edge over its geopolitical rival in the emerging field.

The report explains that China’s DeepSeek-R1 model released last week is 20 to 50 times cheaper to use than OpenAI’s o1 model – and it’s available to users for free, while OpenAI’s ChatGPT Pro Plan costs $200 per month.

News of the stunning capabilities of the Chinese program sent tech stocks plunging Monday morning.

Tech founder and investor David Sacks commented, “R1 shows that the AI race will be very competitive and that President Trump was right to rescind the Biden EO, which hamstrung American AI companies without asking whether China would do the same. (Obviously not.) I’m confident in the U.S. but we can’t be complacent.”

Prominent X user Oliver, a CPA, shared the following analysis on the Chinese AI startup that has caused concerns in Silicon Valley:

A small Chinese AI startup called DeepSeek just erased $1 trillion from the US Equity market in less than 12 hours. But is it a major threat to the US mega caps today? Here’s everything you need to know 👇

DeepSeek AI is a Chinese startup just 1 year old that is causing a global threat to the multi trillion dollar AI industry. It competes with Chat GPT but is thought to cost just $10M.

Founded by a quant hedge fund manager, DeepSeek has basically offered a counter argument that the future of AI will not have to cost huge amounts of capital.

How good actually is DeepSeek? Well, it’s outperforming OpenAI in a few areas and close in a few areas. Considering it has been developed in a matter of months, for a fraction of the price, this is a huge breakthrough. The US couldn’t do this.

What’s happened so far? Well, the market is freaking out (and rightly so).

$ASML is down 9% (on concerns $NVDA and $TSM will lose demand).
$NVDA is down 9%
Other chip makers are down 4-8% and the entire NASDAQ has lost ~$1 trillion.

Why is this such a concern for the US? A company like OpenAI had to raise +$10B in the last 4 months.

DeepSeek did this with just $5M and are competing the same (if not better). That’s 2,000x difference. Can China do it better for a fraction of the cost? Maybe.

Further, the US has banned the export of high-end tech like GPU’s to China to stall the countries advancements in AI and win the US-China tech battle.

DeepSeek has easily proved that they can work around these restrictions with more efficiency and much less resources.

Here’s what I think: Firstly, I agree with @pmarca. I have tried DeepSeek and it’s very impressive. The fact that it has been developed on such limited funding (if true), is remarkable. It is indeed an AI “Sputnik moment”.

Is the market reaction justified? 100% yes.

I don’t believe it’s justified purely because of DeepSeek though. The reason the stock market is valued highly is because of the productivity gains and generational disruptions in AI.

If those productivity gains aren’t worth the capital expenditure that we have become so used to with:
– Stargate $500B initiative
– $MSFT $80B budget
– $META $65B budget

s a reminder, the Mag-7 currently trades at 2 standard deviations above 2001. They’re worth more than the China and Honk Kong markets combined. That’s nuts when you consider it.

Unsurprisingly, DeepSeek appears to be politically biased against President Trump and in favor of Chinese President Xi Jinping.

Follow us on X (Formerly Twitter.)
The DML News App: www.X.com/DMLNewsApp

The Dennis Michael Lynch Podcast archive is available below, with the most recent on top. Never miss an episode. Subscribe to the show by downloading The DML News App or go to Apple Podcasts.

RELATED ARTICLESMORE FROM AUTHOR

CLICK HERE FOR COMMENTS SECTION