You probably saw how China’s DeepSeek AI shocked the American stock market and political landscapes on January 27th. Why did this happen? What could this event mean? What is behind it? Let’s find out.
The release of DeepSeek
The rapid rise of DeepSeek, a Chinese artificial intelligence app, has triggered significant reactions across the U.S. tech industry and political circles. Donald Trump described the app’s unexpected popularity as a “wake-up call” for American tech firms, stressing the urgent need to stay ahead in the competitive AI landscape.
DeepSeek, a budget-friendly AI assistant, became the top-ranked app on Apple’s store over the weekend, outperforming established models from U.S. giants like Meta and OpenAI. Its impressive functionality has unsettled U.S. markets and prompted Trump to remark during a trip to Florida, “The release of DeepSeek AI from a Chinese company should drive our industries to focus intently on competition.”
DeepSeek and TikTok. What do they have in common?
Although Trump acknowledged the innovation behind DeepSeek, he saw its low-cost development as a positive step for the AI field overall, potentially allowing for high-quality solutions at reduced expenses. However, DeepSeek’s success has fueled concerns about the growing dominance of Chinese apps in the U.S. market. This follows the rise of other Chinese platforms, such as RedNote and Lemon8, which gained traction as alternatives to TikTok amid debates over banning the latter due to its Chinese ownership.
TikTok remains a contentious issue, with its new downloads currently restricted due to security concerns. Similar fears now extend to DeepSeek, especially after reports emerged that the app censors sensitive topics, such as the Tiananmen Square protests. Rep. John Moolenaar, chair of the House Select Committee on China, criticized DeepSeek as being under the control of the Chinese Communist Party (CCP) and called for stricter export controls on critical technologies. He emphasized the risks posed by such apps to national security and accused DeepSeek of erasing the CCP’s history of repression.
DeepSeek highlights export control problems
DeepSeek’s developers claim their app was built despite strict U.S. export regulations on advanced semiconductors, fueling debates on the effectiveness of these restrictions. While Senator Mark Warner defended the current rules, he suggested additional measures might be needed to address China’s rapid AI advancements. He noted that while export controls have had an impact, they are not sufficient to curb China’s ambitions in AI development.
House Speaker Mike Johnson expressed alarm over DeepSeek’s implications for U.S. security and the economy, citing China’s history of intellectual property theft and its push for AI leadership. David Sacks, Trump’s AI and cryptocurrency advisor, highlighted the fierce nature of the AI race, pointing out that previous policies under the Biden administration had hindered American AI progress. Nevertheless, he expressed confidence that with the right strategies, the U.S. could maintain its leadership.
Investors are also exposed to risk
DeepSeek’s meteoric rise also sent shockwaves through financial markets. Nvidia, a leading U.S. AI chipmaker, saw its stock plunge nearly 17% on Monday, with other tech firms like Microsoft and Alphabet (Google’s parent company) experiencing notable declines.
My solutions on MQL5 Market: Vladimir Toropov’s products for traders
European markets were similarly affected, with chipmakers such as ASML and Siemens Energy suffering significant losses. Analysts suggest that DeepSeek’s unexpected emergence has raised concerns about the profitability of U.S. companies heavily invested in high-cost AI infrastructure.
DeepSeek rise suddenly shows China’s advantage
The key to DeepSeek’s affordability lies in its innovative design. The app runs on the open-source DeepSeek-V3 model, which reportedly required only $6 million to train—far less than the billions spent by its competitors. By leveraging existing technologies and open-source code, DeepSeek’s developers have managed to create a cost-effective solution that challenges traditional assumptions about AI development.
The app’s rise has drawn comparisons to historic moments of technological competition. Silicon Valley investor and Trump advisor Marc Andreessen likened DeepSeek’s success to the “Sputnik moment” of AI, referencing the Soviet Union’s 1957 satellite launch that took the U.S. by surprise. Similarly, DeepSeek underscores China’s ability to adapt and innovate despite restrictions, as developers pooled resources and explored new methods to overcome limited access to advanced chips.
On Monday, DeepSeek’s developers announced they would temporarily halt new user registrations due to “large-scale malicious attacks” on their software. Existing users remain unaffected as the company works to resolve the issue.
Who is the founder of DeepSeek?
DeepSeek’s founder, Liang Wenfeng, has been instrumental in its success. A 40-year-old graduate in information and electronic engineering, Liang also founded the hedge fund that financed DeepSeek’s development. Reports suggest he strategically stockpiled Nvidia A100 chips before export restrictions took effect, combining them with cheaper alternatives to power the app. His ingenuity highlights the broader challenges and opportunities presented by DeepSeek’s rise.
What are the next steps of the U.S. government?
As the U.S. confronts the implications of DeepSeek’s success, it faces a dual challenge: protecting national security while fostering innovation to stay competitive. The coming months will test how policymakers and industry leaders strike a balance in an increasingly high-stakes global AI race.
My solutions on MQL5 Market: Vladimir Toropov’s products for traders