What is DeepSeek, the AI model taking the internet by storm?

Chinese artificial intelligence (AI) startup DeepSeek is stirring up anxiety in Silicon Valley after launching a new AI model that appears to rival leading AI ventures in the U.S. for a fraction of the cost.

The one-year-old startup launched an AI model called R1 last week, which quickly drew comparisons to models offered by OpenAI or Google and sent U.S. stocks plunging during weekend afterhours trading.

DeepSeek surged to the top of the Apple's App Store in recent days. As of Monday morning, the application was the No. 1 free app on the store, while ChatGPT maker OpenAI sat at No.2.

The company, founded in May 2023, allegedly spent just $5.6 million to train its latest models, the Wall Street Journal first reported over the weekend. The apparent price tag pales in comparison to the often billions of dollars being spent by U.S. companies to develop and maintain AI models.

Meta CEO Mark Zuckerberg said just last week his social media company plans to invest between $60 and 65 billion this year into AI development. The price of Meta stock fell about 3.5 percent on Monday.

The Chinese app drew the attention of several major players in Silicon Valley while spurring fear in some that China is threatening the perceived invincibility about the U.S. technology industry.

“Deepseek R1 is one of the most amazing and impressive breakthroughs I’ve ever seen,” Silicon Valley venture capital Marc Andreessen wrote in a post on X last Friday.

Despite the hype and stock market reaction, others in the industry said China has a long way to go before it can compare with the U.S.'s AI infrastructure.

"While the model is impressive and it will have a ripple impact, the reality is that Mag 7 and US tech is focused on the AGI endgame with all the infrastructure and ecosystem that China and especially DeepSeek cannot come close to in our view," Wedbush analysts wrote in a note to clients on Monday.

Nonetheless, U.S. stocks pummeled on Monday, with the tech-focused Nasdaq dropping 3.9 percent before the bell. Chipmakers Nvidia and Broadcom slid about 12 percent, while Google parent company Alphabet lost about 3.5 percent.

"DeepSeek built the model using reduced capability chips from Nvidia which is impressive and thus has caused major agita for US tech stocks with massive pressure on Nasdaq this morning," Wedbush analysts explained.

The shockwaves in Silicon Valley come amid a monthslong push against China's advancements in chipmaking.

The Biden administration issued a series of restrictions on exports of certain semiconductor chips and equipment to China over the past year.

U.S. officials hope the hampering of China's chip production will in turn curb the development of military equipment and AI systems that pose a risk to U.S. national security.

As one of his first official acts back in the White House last week, President Trump announced the project Stargate, which will invest up to $500 billion in AI infrastructure in the U.S. over the next four years.

OpenAI, Oracle and SoftBank are initial investors in the project.

The president called it the “greatest AI infrastructure project by far in history” while nodding to the foreign competition the U.S. faces regarding emerging technology. 

“It will ensure the future of technology. What we want to do, we want to keep it in this country—China’s a competitor, others are a competitor,” Trump said last week.