DeepSeek: Chinese AI firm that has become most-downloaded app in the US rocks the value of big tech firms

Tech shares plunged and chip maker Nvidia suffered falls of nearly 17% on Monday, as President Donald Trump warned DeepSeek’s emergence was a “wake up call” for existing AI giants.

Nvidia’s drop in share price marked the biggest ever one-day loss in market value on Wall Street, of about $589bn. This roughly the value of Netflix.

Just a week after its launch, DeepSeek has quickly become the most downloaded free app in the US. It claims that its large language AI model was made at a fraction of the cost of its rivals, including OpenAI, which uses more expensive Nvidia chips to train its systems on vast swathes of data.

The announcement has raised significant doubts over the future of US firms’ dominance in AI, prompting the sharp falls for Nvidia, as well as tech giants including Microsoft, Meta and Google parent Alphabet, which are all pouring billions into the technology.

The S&P 500 dropped 1.5%, dragged down in large part by the fall from Nvidia.

DeepSeek’s claims also affected tech stocks elsewhere, with Dutch chip making company ASML falling 7% and Japan’s Softbank dropping 8.3%.

The FTSE 100 appeared resilient on Tuesday morning, rising 0.21% in early trading.

A Downing Street spokesman said the advancements show the UK must “go further and faster to remove barriers to innovation” in the AI sector.

Asked whether the government would be open to using Chinese AI such as DeepSeek in Whitehall, the Prime Minister’s official spokesman said: “We’ve got some of the strongest data protection laws in the world and we will always ensure personal data and the operation of public services is handled responsibly and securely.

“But more broadly on the developments over the last few days, the rapid development and breakthrough of new AI models demonstrates exactly why the UK is so focused on AI and why we need to go further and faster to remove barriers to innovation here to make the UK a more competitive market.

“And whilst we’ve already got the third largest AI market in the world, we’ve got an opportunity to get ahead and do more, and that’s what our AI Opportunities action plan is all about.”

The spokesman added he would not “get ahead of specific models” when asked whether he would rule out using Chinese AI in Whitehall.

Analysts said the announcement from DeepSeek is especially significant because it indicates that Chinese firms have innovated faster despite the US putting controls on exports of Nvidia’s most powerful chips to the country.

The news marks a sharp change in fortunes for established AI companies, whose stocks have soared in value in recent years amid hopes they would reshape the world economy and deliver huge profits.

Mr Trump said he was not concerned about the breakthrough, adding that the emergence of DeepSeek could be “a positive” and a “wake-up call” for the US.

“If you could do it cheaper, if you could do it (for) less (and) get to the same end result, I think that’s a good thing for us,” he told reporters on board Air Force One.

Mr Trump also said he wanted to bring in trade tariffs that are “much bigger” than the 2.5% that some reports had suggested were favoured by incoming Treasury Secretary Scott Bessent.

“I have it in my mind what it’s going to be but I won’t be setting it yet, but it’ll be enough to protect our country,” Mr Trump told reporters on Monday night.

It comes as DeepSeek said it was the victim of a cyber attack on Monday that prevented users from registering on its site.

The company said it had suffered “large-scale malicious attacks” on its services but that registered users were able to log in normally.

Kathleen Brooks, research director at investment firm XTB, said: “How does Trump react to a threat against the US AI dominance? He threatens wide-ranging tariffs on foreign-produced semiconductors, pharma and metals.

“Since Nvidia uses chips produced by TSMC in Taiwan, it could be hit by the tariffs. However, the 17% drop in its share price on Monday, which led to a record 589bn dollar loss in its market cap, may have gone too far and there are early signs in European trading that Nvidia could stage a recovery on Tuesday.”

What is DeepSeek?

In simple terms, DeepSeek is an AI chatbot app that can answer question and queries much like ChatGPT, Google’s Gemini and others. Being from China, the app does not answer certain politically sensitive questions, but its developers say its general performance is on a par with its high-profile US rivals.

Hype around the app has seen it leap to the top of app store download charts in the UK, US and elsewhere.

What is the firm’s backstory?

An AI start-up, DeepSeek was founded in 2023 in Hangzhou, China, and released its first AI model later that year.

Chief executive Liang Wenfeng previously co-founded a large hedge fund in China, which is said to have amassed a stockpile of Nvidia high-performance processor chips that are used to run AI systems.

Sales of these chips to China have since been restricted, but DeepSeek says it recent AI models have been built using lower-performing Nvidia chips not banned in China – a revelation which has part-fuelled the upending of the stock market, promoting the idea that the most expensive hardware might not be needed for cutting edge AI development.

Last month, the company first released an AI model it said was on par with the performance of high-profile US firms, including OpenAI’s ChatGPT.

Why has this spooked the tech market so much?

Being a new rival to ChatGPT is not enough in itself to upend the US stock market, but the apparent cost for its development has been.

According to reports, DeepSeek is powered by an open source model called R1 which its developers claim was trained for around six million US dollars (£4.8 million) – although this claim has been disputed by others in the AI sector – and how exactly the developers did this still remains unclear.

However, anything close to that figure is still substantially less than the billions of dollars being spent by US firms – OpenAI is said to have spent five billion US dollars (£4 billion) last year alone.

This apparent cost-effective approach, and the use of widely available technology to produce – it claims – near industry-leading results for a chatbot, is what has turned the established AI order upside down.

As a result, Silicon Valley has been left to ponder if cutting edge AI can be obtained without necessarily using the latest, and most expensive, tech to build it.

What does DeepSeek’s emergence mean for the AI sector?

The arrival of DeepSeek has shown the US may not be the dominant market leader in AI many thought it to be, and that cutting edge AI models can be built and trained for less than first thought.

Some commentators have said this may lead to a democratisation in the AI research market, as innovation may no longer only be accessible to those with the deepest pockets. As a result, it could mean more innovation in the sector comes from a broader spectrum of places, rather than just the big names in California.

But experts have also said it could have an impact on the world’s approach to China, and in particular the United States, with US President Donald Trump already calling it a “wake-up call” for American AI giants.

Nigel Green, chief executive of asset management firm deVere Group, said: “This is a wake-up call for markets. The assumption that tariffs could contain China’s technological ambitions is being dismantled in real time.

“DeepSeek’s breakthrough is proof that innovation will always find a way forward, regardless of economic barriers. By restricting China’s access to high-end semiconductors, Washington sought to slow its progress in AI. Rather than being crippled by US sanctions, Beijing has cultivated AI models that require significantly less computing power, diminishing its reliance on American technology and eroding US leverage over global supply chains.”