There's a new AI model on the market, which has left Silicon Valley worried. Chinese AI app DeepSeek has climbed to the top of Apple’s App Store rankings in the US, UK, and China, surpassing ChatGPT and other competitors to become the highest-rated free app.

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Launched in January, the app has seen a surge in popularity, challenging the assumption that the US maintains an unshakable lead in artificial intelligence. DeepSeek is powered by the open-source DeepSeek-V3 model, which its developers claim was created for under $6 million, a fraction of the billions reportedly spent by rival AI companies.

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AI’s Sputnik moment

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Earlier this month, the company introduced DeepSeek-R1, which it claims offers "performance on par with" one of OpenAI’s most advanced models. Silicon Valley venture capitalist and advisor to Donald Trump, Marc Andreessen, described DeepSeek-R1 as "AI’s Sputnik moment," referring to the Soviet Union’s 1957 launch of the first artificial satellite.

AI models like ChatGPT and DeepSeek rely heavily on advanced chips for their training. However, since 2021, the US has tightened restrictions on the export of advanced chips to China. In response, Chinese AI developers have collaborated and experimented with innovative techniques to continue their work without a steady supply of high-end imported chips. This has led to the creation of AI models that require significantly less computing power and are much cheaper to produce, potentially transforming the industry.

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The rise of DeepSeek has had a noticeable impact on markets. Shares in major US AI-related firms such as Nvidia, Microsoft, and Meta fell on Monday morning, while European companies also felt the effects. ASML, a Dutch chip equipment manufacturer, saw its shares drop by over 10%, and Siemens Energy’s shares fell by 21%.

A group of US tech firms and international investors recently announced The Stargate Project, which aims to invest $500 billion in AI infrastructure in Texas.

Who founded DeepSeek?

DeepSeek was established in 2023 by Liang Wenfeng, an information and electronic engineering graduate from Hangzhou in southeastern China. Liang, who also founded the hedge fund that financed DeepSeek, reportedly stockpiled Nvidia A100 chips—now banned from export to China—to support the development of the app. Experts estimate he acquired around 50,000 of these chips and combined them with lower-end, imported alternatives to create the technology behind DeepSeek.

Liang was recently seen attending a meeting of industry experts with Chinese Premier Li Qiang. In an interview with The China Academy in July 2024, he expressed surprise at the attention his earlier AI model received.

“We didn’t expect pricing to be such a sensitive issue. We were simply following our own pace, calculating costs, and setting prices accordingly,” he said.

(With inputs from agencies)