DeepSeek, the newly launched artificial intelligence application from China, has caused unprecedented turmoil within global financial markets, significantly alarming investors, especially those based in the United States. Since its debut on January 20, 2025, the app has quickly climbed to the top of app stores and competitors, raising questions about the competitive edge it has over established platforms like OpenAI's ChatGPT.
Reports from The Economic Times indicate concerns around DeepSeek's alleged usage of Nvidia's H100 chips, which have been banned for Chinese companies under U.S. export controls. Alexandr Wang, CEO of Scale AI, claims the startup utilizes as many as 50,000 of these chips. The potential of these banned resources raises serious eyebrows not only among tech analysts but within government circles as well, following the U.S's efforts to contain China's tech advancements.
DeepSeek’s rise coincides with growing tensions between the U.S. and China concerning technological developments, particularly AI. The U.S. has increased restrictions on Chinese access to advanced semiconductor technologies, citing reasons tied to national security and economic rivalry. Experts have said such actions are part of a broader strategy termed “small yard, high fence,” aimed at limiting China's ascendancy as a technology superpower.
Despite these pressure tactics, the emergence of DeepSeek indicates the resilience and rising capabilities of Chinese tech firms. The new application has quickly demonstrated high competitiveness against leading AI platforms, which has directly impacted the stock market. Nvidia, one of the key players affected, saw its stock plummet by 17% soon after DeepSeek's launch, resulting in losses of roughly $600 billion—marking the largest single-day drop ever recorded for U.S. financial markets. The Philadelphia Semiconductor Index fell by 9.2% as part of the market's adverse reaction.
Former U.S. President Donald Trump expressed his alarm, characterizing DeepSeek’s success as a “wake-up call.” He emphasized it should serve as motivation for American companies to bolster their AI competitiveness. The U.S. Navy, reflecting similar concerns, went so far as to issue instructions banning its personnel from using the app due to potential security risks linked to its origins.
Controversy continues to swirl around DeepSeek’s rapid growth, raising questions about how seriously the West can take China's AI advancements. Some analysts argue the U.S. containment strategies may be failing, especially with regards to the resilience shown by companies like DeepSeek and March’s national telecom giant Huawei, which overcame sanctions and restrictions to regain its footing and innovate dramatically within the tech sector.
Leading experts, including Lennart Heim from Rand Corp, acknowledge China’s impressive advances but caution against overestimations of their AI capabilities compared to those from U.S. giants like OpenAI and Google. The general sentiment, as articulated by Kai-Fu Lee, is one of skepticism shifting to shock as DeepSeek displays capabilities indicative of potential threats to U.S. tech dominance.
DeepSeek may reflect not just the promise of Chinese innovation but also the political will of the Communist Party of China (CPC) to establish itself as a driving force globally. This ambition is codified within various government policies dating back to 2017, targeting AI development as pivotal to China's economic transformation. The CPC has made it clear through its roadmap for AI dominance by 2030, aiming for China to transform its tech ecosystem and set itself as the primary center for AI innovation.
Yet with all the rapid advancements, China faces significant political questions internally. The CPC's regulatory interventions present challenges for the technology industry, which could hinder innovation. Political controls and censorship may tamper with the organic growth of AI sectors, potentially stifling originality. Observers are left wondering how sustainable DeepSeek’s explosive growth can be amid such conditions.
Externally, geopolitics always loom large. Allegations of intellectual property theft follow innovations from Chinese firms, and DeepSeek is no exception. The startup has been accused of utilizing “distillation” practices—methods for training smaller models based on outputs from larger ones. These practices are common within AI development circles, raising contrasting concerns about proprietary technologies among global competitors.
DeepSeek’s success—and the shock it has delivered to the established tech hierarchies—could herald significant shifts not just within market valuations but also across U.S. policy responses to China. With mounting pressure on American firms to innovate and compete fiercely, the overarching narrative remains whether DeepSeek’s rise is merely the beginning of Beijing's technological dominance or just another chapter within the broader U.S.-China rivalry.