Alphabet Inc. (GOOGL) stock plummeted 5.01% in pre-market trading on Monday, as the search giant and other US tech companies faced a new challenge from China's DeepSeek, a little-known AI startup that claims to have developed a powerful AI model at a fraction of the cost of its American counterparts.
DeepSeek's R1 model, released on January 20, has reportedly outperformed systems from industry leaders like OpenAI and Meta on various math and reasoning benchmarks. However, the standout feature of R1 is its low training cost – DeepSeek claims it spent just $5.6 million and used less powerful Nvidia H800 chips to develop the model.
This revelation has sparked fears that DeepSeek's low-cost approach could undermine the massive investments and demand for advanced AI chips and infrastructure from US tech giants. If DeepSeek's claims prove true, it could pose an "existential threat" to the AI ambitions and business models of companies like Alphabet, Microsoft, and Nvidia, which have poured billions into developing cutting-edge AI systems and data centers.
The concerns intensified as DeepSeek's AI Assistant app surged in popularity, overtaking ChatGPT to become the top-rated free app on the US Apple App Store over the weekend. This highlighted the competitiveness of DeepSeek's AI and raised questions about the effectiveness of US export controls aimed at preventing China from accessing advanced AI capabilities.
