A Chinese AI startup, DeepSeek, has sent shockwaves through Wall Street and Silicon Valley after unveiling an AI model that reportedly rivals top US systems—at a fraction of the cost. Founded in Hangzhou less than a year ago by hedge fund manager Liang Wenfeng, DeepSeek claims its R1 model can match or outperform leading AI models while costing under $6 million to develop.
With tech giants like Microsoft, Google, and OpenAI investing billions into large language model (LLM) development, the emergence of DeepSeek has raised pressing questions about cost efficiency and AI investment strategies. Investors, spooked by the startup’s rapid success, triggered a sell-off in AI-related stocks, sending ripples across the financial sector.
How DeepSeek Built Its AI Arsenal
DeepSeek’s rise has put a particular strain on Nvidia, the dominant supplier of AI chips. As news of the startup’s capabilities spread, Nvidia’s stock price dipped by 3%, with analysts questioning how DeepSeek developed a cutting-edge AI system on a tight budget.
At the 2025 World Economic Forum, ScaleAI CEO Alexandr Wang confirmed that DeepSeek’s latest AI model rivals the best American models. He also revealed that the company had somehow acquired 50,000 Nvidia H100 chips, despite strict US export controls designed to limit China’s access to advanced AI technology. This revelation has led to further scrutiny over the effectiveness of US tech sanctions.
Meanwhile, DeepSeek’s mobile application, powered by its V3 model, skyrocketed to the #1 spot on Apple’s US App Store for free downloads in January 2025, overwhelming the company’s servers and leading to a temporary outage of its website and API.
Cybersecurity and Market Impact
DeepSeek’s meteoric rise has also drawn attention from cybersecurity experts. Jake Moore, Global Cybersecurity Advisor at ESET, warns that DeepSeek’s sudden popularity makes it a prime target for cyberattacks:
“DeepSeek has certainly been in the limelight, which can act as a huge honeypot for cybercriminals. When a platform dominates the media for multiple reasons, threat actors will look for vulnerabilities to exploit.”
Beyond cybersecurity concerns, Wall Street investors are grappling with a deeper issue: how DeepSeek developed a world-class AI model at such a low cost. With US tech firms pouring billions into AI infrastructure, some are questioning whether their investments have been over-inflated or misallocated.
As the global AI race intensifies, DeepSeek’s success could force Silicon Valley to rethink its approach—both in terms of AI development costs and future market strategy.
