The AI arms race just got real.
That’s because an upstart Chinese firm has handed the Silicon Valley its first ‘Sputnik’ moment with new software that threatens to disrupt US dominance over the fast-emerging new technology.
On Monday, the China-backed DeepSeek dethroned OpenAI’s ChatGPT as the most downloaded free app on Apple’s App Store.
That sent shockwaves through the market. Nvidia shares plunged 16%. Nvidia lost more than $600 billion in market capitalization, which would be — by far — the single greatest one-day value wipeout of any company in history.
Just last week it surpassed Apple to become the world’s most valuable company.
To put it into perspective, Nvidia’s losses are larger than the market cap of titans like health insurer UnitedHealth, oil giant Exxon Mobil and retailer Costco.
DeepSeek's R1 model, an open-source reasoning engine, is making waves not just for its performance, but for how cheaply it was built. The company claims it trained its latest model using just 2,000 Nvidia chips compared to the 16,000 or more needed by competitors at a fraction of the cost.
The irony is that it was developed using Nvidia’s graphic processing units (GPU), adding insult to injury. Those hardware pieces can cost upwards of USD$25,000 a piece.
If big US tech companies “can learn from DeepSeek to design AI systems with cheaper GPUs…it might not be a happy development for Nvidia,” Ed Yardeni of Yardeni Research said in an analyst note to clients.
Panicked Meta reportedly launched multiple internal war rooms to analyze the disruption, while Microsoft was reportedly “leaning” into its AI investments to stay ahead.
It comes days after US president Donald Trump announced a massive AI initiative, pouring up to half a trillion dollars into domestic AI infrastructure with OpenAI, Nvidia, and Oracle from the Oval Office.
Although some praised DeepSeek for seemingly being less susceptible to ‘politically correct’ censorship from other major North American AI platforms, others on Twitter (“X”) noted that information on Chinese hot buttons like the Tiananmen Square massacre and Taiwan appear to be heavily redacted.
Nonetheless, Elon Musk who has his own AI company — xAI — called ‘bunk’ on the claims. DeepSeek “obviously” has 50,000 Nvidia H100 chips that they can’t talk about due to US export controls, he posted to Twitter (“X”).
In another post, Musk dubbed the AI platform "DeeperSeek… Lmao no."
Musk’s own company is expected to release its own AI model, ‘Grok-3’, next week.
In a 2024 op-ed for the Washington Post ,Musk rival and OpenAI CEO Sam Altman — who appeared alongside Trump last week — said: “We face a strategic choice about what kind of world we are going to live in.”
“Will it be one in which the United States and allied nations advance a global AI that spreads the technology's benefits and opens access to it, or an authoritarian one, in which nations or movements that don't share our values use AI to cement and expand their power?”