Artificial intelligence has taken the world by storm in the past few years. With new AI technology being released often and older models being made obsolete so fast, many are now wondering if research into the software is still an appropriate use of time and money.
On Jan. 27, 2025, many giant technology stocks crashed when the market opened at 9:30 a.m. The NVIDIA Corporation dominates the AI computer chip manufacturing industry, and its stock price dropped from over $142 per share to $118 per share at market close. Other tech stocks, including Google, Microsoft, and Oracle all lost significant value. This crash was caused by a single company, DeepSeek. This China-based company announced a new AI model that can outperform OpenAI’s ChatGPT and Meta’s Llama AI models. While this would not have normally had this big of an effect on the stock market, DeepSeek was able to make this AI model at a fraction of the price that it took to make ChatGPT and Llama. While United States tech giants have invested billions of dollars into the advancement of AI, DeepSeek has managed to create a better model with less than $6 million. DeepSeek’s new model also used inferior, old NVIDIA H800 chips. It was previously thought that an AI model with the power and performance of DeepSeek’s needed to be trained with the latest and greatest chips, but this new model has thrown the industry on its head.
With new AI models being created and improved so rapidly, continuing to invest billions into the market may be a risky bet. It was previously thought that the start-up cost of developing a new AI model would be far too high for new companies to enter the race. DeepSeek’s new model suggests that American companies have overinvested in the development of AI and have moved too fast to create faster and more efficient models. DeepSeek’s model is more efficient to run than ChatGPT and more environmentally friendly as a result. If newer companies can now compete with the AI giants, new competition has entered the market and has put trillions of invested dollars at risk.
In addition to being more efficient than ChatGPT, DeepSeek is completely free to use and has become the most downloaded free app in the U.S. In order to make the app free, DeepSeek has to harvest user data to compensate for not charging an up front cost for the service. DeepSeek is considered by many to be a security risk, especially with the amount of popularity the app has shown in its first week. The U.S. may end up regulating AI at some point in the near future, and it would be realistic to regulate a Chinese company that harvests user data by default. DeepSeek has not spoken out about its policies regarding using user data, but many companies have preemptively banned the app. The U.S. Navy has also banned DeepSeek for any work-related tasks or personal use. The app has also been banned in Italy and is unavailable for download in that country.
While many markets have recovered some of their stock prices since the crash, investors are still being cautious as to where they are putting their money. Regulation in the AI industry is basically non-existent, and if the U.S. is so concerned about China stealing the data of Americans, DeepSeek’s new model could be used for this purpose. AI models often learn as they get more input from users, and if a large number of users are located in the U.S., the data and requests of those people would have to be harvested by DeepSeek to make the model better.
Many doubt the legitimacy of DeepSeek’s claims about its new AI model. Industry expert and U.S. entrepreneur Palmer Luckey, who founded Oculus, weighed in on the issue on X. “The $5M number is bogus,” said Luckey. “It is pushed by a Chinese hedge fund to slow investment in American AI startups, service their own shorts against American titans like Nvidia, and hide sanction evasion.”While these claims cannot be proven yet, the general consensus seems to be that the cost and efficiency of the software has been exaggerated. Until that is proven, the new model has turned the AI world on its head and made countless investors reconsider where to allocate future investments after the big loss on Jan. 27. With China’s risks to national security becoming more known, DeepSeek’s days may be numbered.
