DeepSeek's affordable AI shocks the global chip market
The emergence of DeepSeek's R1 AI model is shaking up the global chip market as established companies see their stocks value dropping.
Published on January 27, 2025
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Chinese AI startup DeepSeek's chatbot is shaking up global chip markets. DeepSeek's R1 model surprised Silicon Valley competitors, becoming the most downloaded app on Apple's App Store and causing Western chip companies' stock prices to plunge-ASML's stocks dropped by 9% today.
DeepSeek, founded by Chinese hedge fund manager Liang Wenfeng, has emerged as a disruptive force in the AI landscape by developing sophisticated language models at a fraction of the cost of its Western counterparts. The company's latest achievement, the R1 model launched on January 20, 2025, demonstrates capabilities comparable to industry leaders while operating on significantly less computing power. Most remarkably, DeepSeek developed this technology for approximately $6 million, starkly contrasting Western competitors like OpenAI and Google, who invested billions in their AI models.
Technical innovation under constraints
What makes DeepSeek's achievement particularly notable is its efficient use of computing resources. The company developed its V3 model using just 2,000 Nvidia H800 GPUs, while similar capabilities typically require around 16,000 GPUs. Despite using older hardware due to U.S. export restrictions, DeepSeek's models demonstrate advanced coding, translation, and text generation capabilities. The platform has gained particular recognition for its enhanced reasoning capabilities and transparency in showing its reasoning steps, making it especially appealing to scientists.
A Chinese startup is sparking concern over US's AI dominance
DeepSeek recently launched DeepSeek V3, an open-source language AI model that is able to outperform the ones of industry giants like Open AI and Meta.
Market impact and industry concerns
The success of DeepSeek's approach has sent shockwaves through the global technology sector. On January 26, 2025, DeepSeek R1 became the most downloaded app in Apple's App Store, triggering significant market reactions. The impact extended beyond software companies to hardware manufacturers, with Nvidia's shares falling 3% on January 26 and dropping a further 11% in pre-market trading on January 27, 2025.
The development has particularly affected Dutch chip industry giants. As DeepSeek proved the capability to reach OpenAI's standards with far less computing power, this poses a threat to future chip production and ASML, which manufactures chip-making devices.
In addition to ASML's decline, competitors Besi and ASM International are seeing losses exceeding 10%.
Geopolitical implications
This development has sparked concerns about U.S. technological dominance in AI. The situation has exposed potential unintended consequences of U.S. export restrictions, as Chinese companies have been forced to innovate within their constraints. This comes at a crucial time when the U.S. is launching significant initiatives like The Stargate Project, which aims to invest $500 billion in AI infrastructure.