DeepSeek has overtaken ChatGPT as the highest-rated free application on the Apple App Store.
U.S. stock traders took a decidedly risk-off turn early Monday morning, sending the NASDAQ 100 (NDX) down 4% and the S&P 500 (SPX) 2.5% lower over concerns that Chinese start-up DeepSeek will upend American artificial intelligence (AI) technology.
Founded in 2023, DeepSeek develops open-source AI models. DeepSeek’s AI Assistant, released on January 10, overtook ChatGPT on Monday as the number-one rated free application on the Apple (NASDAQ:AAPL) App Store in the U.S.
Being open-source isn’t the only feature differentiating DeepSeek from competing U.S.-based AI apps. Per Bloomberg, DeepSeek’s AI Assistant app “distinguishes itself from other chatbots by articulating its reasoning before delivering a response to a prompt.”
Moreover, DeepSeek’s AI Assistant chatbot reportedly costs less than ChatGPT.
In a note to clients, Jefferies analysts warned that DeepSeek’s AI assistant “could be a disruptor to the current [U.S.] AI business model, which relies on high-end chips and extensive computing power and hence energy”.
This news comes amid U.S.-China tensions as President Donald Trump threatens China with tariffs, and after former President Joseph Biden had restricted certain U.S. exports of AI technology to China.
Among the technology stocks dragging the market lower were those of AI-associated firms such as NVIDIA (NASDAQ:NVDA), Microsoft (NASDAQ:MSFT), Meta Platforms (NASDAQ:META) and Advanced Micro Devices (NASDAQ:AMD).
Analysis: It’s really not about DeepSeek at all
This news story might, on the surface, appear to be all about DeepSeek. However, upon deeper reflection, the central issue is actually how fragile the U.S. AI stock rally is in 2025.
The forward-looking American financial market has priced in a great deal of assumed earnings and stock price growth for NVIDIA, Advanced Micro Devices, and similar tech mega-caps during the past couple of years. Now, overeager investors must contend with the possibility that the reality of future AI spending won’t match the hype.
Vey-Sern Ling, managing director at Union Bancaire Privee, summarized DeepSeek’s threat to the widespread assumption of U.S. dominance in the AI field.
“DeepSeek shows that it is possible to develop powerful AI models that cost less,” he explained.
“It can potentially derail the investment case for the entire AI supply chain, which is driven by high spending from a small handful of hyperscalers.”
Had it not been DeepSeek, some other cost-efficient alternative to the currently prevailing AI models would have come along sooner or later. Consequently, the stocks of tech firms with high price-to-earnings (P/E) ratios such as NVIDIA (with a P/E ratio of 56x prior to Monday’s opening bell) and Advanced Micro Devices (with a P/E ratio of 109x) have been vulnerable to the advent of newcomers such as DeepSeek.
It just so happens that DeepSeek, one of a slew of AI technology startups worldwide, caught today’s traders' attention and imagination. It remains to be seen whether the sellers of U.S. tech stocks will remain in control for a while or whether it’s just a single-day dip to be reversed on the so-called “turnaround Tuesday”.