Could China’s “Deep Seek” Bring Turmoil to the American AI Market with Less Than $6 Million?

Global financial markets have recently experienced unprecedented turbulence following the sudden rise of the Chinese AI application “Deep Seek,” which has topped app stores and unnerved investors, particularly in the United States.

This concern stems from various factors, including the app’s low development cost, its rapid spread, and its direct impact on major tech company stocks, notably the American tech giant “NVIDIA.”

“Deep Seek”… A Financial and Technological Earthquake

According to a report by the BBC, “Deep Seek,” launched on January 20th, has shown high competitiveness compared to leading AI models worldwide, such as “Chat GPT,” delivering advanced performance at a much lower cost.

As a result of this success, NVIDIA’s shares plummeted by 17%, resulting in a loss of approximately $600 billion in market value in a single day, marking the largest one-day drop in American financial market history.

Moreover, as reported by the Financial Times, this decline led the Philadelphia Semiconductor Index to fall by 9.2%. In comparison, the Nasdaq Index recorded a drop exceeding 3%, heightening concerns about the future of American AI companies on Tuesday.

Steven Yu, a senior analyst at Blue Whale Growth, believes that “these losses reflect the market’s sensitivity to Chinese companies’ ability to innovate at lower costs, prompting investors to reassess their spending on artificial intelligence.”

Why Are American Investors Worried About “Deep Seek”?

“Deep Seek” has emerged as one of the most controversial innovations in global markets, not only due to its advanced performance but also because of its wide-ranging economic implications.

The launch of this Chinese model has revealed significant shifts in the balance of power between Western and Chinese tech companies, causing American investors to be increasingly anxious about the future of their investments in this sector.

Several key factors drive this concern, the foremost being “Deep Seek’s” ability to achieve remarkable results at low development costs, threatening the sustainability of American models that rely on massive investments.

Additionally, China’s rapid progress in this field could lead to American companies losing their technological edge, making them susceptible to substantial economic losses.

Low Development Costs

According to an analysis published by Bloomberg, “Deep Seek” was developed with a budget not exceeding $6 million – some Asian analyses estimate the actual cost is even less, not surpassing half of this amount – compared to estimates suggesting the development of “GPT-4” cost over $100 million.

This significant cost gap has raised fundamental questions about the feasibility of massive investments made by American companies in AI development.

Economic expert Dan Hutcheson from TechInsights mentioned, “Reducing costs drastically reshapes the AI market, as it’s no longer just about possessing advanced technology but also how limited resources are efficiently leveraged to achieve similar results.”

Challenging American AI Dominance

In a move supporting Chinese ambitions, President Xi Jinping has declared AI development a national priority, bolstering China’s chances of competing globally.

Conversely, the United States is attempting to impose stringent restrictions on exporting advanced chips to China, yet “Deep Seek” proved China’s capability to circumvent these barriers.

According to a Counterpoint Research analysis, “American policies to limit chip exports haven’t significantly impacted Chinese companies but instead motivated them to adopt new strategies relying on software efficiency rather than immense computational power.”

Catastrophic Decline for NVIDIA

The U.S. chip manufacturing sector took a massive hit after reports revealed that “Deep Seek” did not rely on NVIDIA’s latest chips but developed new software algorithms using less advanced yet more cost-effective chips.

As a result, NVIDIA’s market value plummeted, losing its position as the top American company to Apple and Microsoft.

Dylan Patel, an analyst at SemiAnalysis, commented, “What is happening now isn’t just a decline in one company’s stocks but a reshaping of the entire AI industry, where Chinese companies could become the main players in the coming years.”

China had already experienced a meteoric rise in the electric vehicle sector over the last decade, with local companies like BYD and NIO outpacing many global competitors by offering technologically advanced vehicles at competitive prices, making them the dominant force in the industry.

This success reflects China’s strategy of achieving global market dominance through innovation supported by low production costs.

Experts believe that the same scenario could recur in the AI field, with “Deep Seek” potentially following in the footsteps of Chinese car companies, leading to a redistribution of technological power globally and pushing American companies to adopt new strategies to counter this rising threat.

Impact of “Deep Seek” on Various Sectors

With the rapid advancements in AI technologies, the impact of these developments is no longer confined to the technology sector alone but has spread across various economic and industrial sectors.

“Deep Seek” is one of the most prominent examples of this transformation, as numerous analyses suggest that its spread and impact are not limited to AI-specialized companies but also reflect on financial markets, financial services, manufacturing, and global trade.

This growing influence presents new challenges for companies across different sectors, as they need to reassess their strategies to keep pace with the rapid changes brought about by Chinese AI.

As China’s role in this field escalates, concerns over the loss of American dominance in digital innovation are rising, potentially leading to significant shifts in the global economic landscape.

Technology and Innovation Sector

Major American companies like “Microsoft” and “Google” are racing to develop more advanced AI models to face the “Deep Seek” threat. Analysts suggest these companies may need to reduce prices or enhance the efficiency of their smart products to maintain their market position.

Financial Sector

Reports from Reuters indicate that many financial institutions have begun to reassess their investment strategies in AI. Investors fear the potential emergence of an economic bubble in this sector, which could result in massive losses similar to the “dot-com” crisis in the early 2000s.

Industry and Smart Manufacturing

According to a report by the Wall Street Journal, “Deep Seek” could reshape the smart manufacturing sector, with car companies and factories in Asia starting to use Chinese AI technologies to reduce costs and increase production efficiency.

Are We Witnessing the End of the AI Bubble?

In recent years, massive investments have been poured into the AI sector, with global companies betting on the enormous potential this field can offer across various sectors.

However, the emergence of “Deep Seek” and its economic repercussions have led many experts and investors to reconsider the sustainability of this growth and whether we are indeed facing an economic bubble similar to the dot-com crisis in the early 2000s.

The Financial Times reported that “Deep Seek” might be the beginning of a new wave of low-cost smart innovations. According to Marina Zhang from the University of Technology Sydney, “What we are witnessing today is a restructuring of the AI market, with increasing pressure on American companies to prove that their massive investments yield real returns.”

Bubble Indicators… Overvaluation?

Some analysts argue that the massive investments that have flowed into the AI sector in recent years might not be supported by sufficient financial returns, potentially leading to a sudden market collapse.

According to a Bloomberg report, the amount of funding directed to AI startups has increased by 150% over the past three years, while the actual profits of most of these companies have not exceeded 10% of initial expectations.

Edward Muir, a senior analyst at Morgan Stanley, stated, “We are witnessing an unprecedented overvaluation of AI startups, reminiscent of the internet bubble in the 1990s when massive investments were poured into companies lacking sustainable business models.”

How Does “Deep Seek” Affect Market Correction?

With “Deep Seek” emerging as a strong competitor with low development costs, the pressure on American companies to justify their substantial spending on AI technologies is mounting. For instance, Microsoft announced a $10 billion investment in its partnership with “OpenAI,” while “Deep Seek” managed to build a competitive model on a budget not exceeding $6 million.

According to Jacob Levinson, an investment expert at Goldman Sachs, “If the current trend continues, we might witness a mass exodus of venture capital from some American AI companies, with investors gravitating towards more cost-efficient models like ‘Deep Seek’.”

One of the most dangerous repercussions of an AI bubble collapse would be its impact on the job market. A report by consulting firm McKinsey estimates that about 30% of emerging tech jobs depend on AI investments. A sharp market correction could result in thousands of job losses and a slowdown in innovation in this field.

Bubble or Natural Correction?

Some analysts believe that what we are witnessing is not an imminent collapse of the sector but rather a natural correction of prices, especially with the entry of new competitors like “Deep Seek,” which forces Western companies to reassess their business models.

Marina Zhang from the University of Technology Sydney states, “What we see now is a shift like the AI market, where high-cost models are being replaced by more efficient ones. It is not necessarily a complete market collapse.”

What Might Happen in the Coming Years?

Future developments could take several paths, ranging from continued Western dominance in AI technologies to a shift in the center of innovation to China, which could redraw the global economic power map.

The Rise of China as a Dominant Technological Force

If China continues to develop highly efficient AI technologies at low costs, as seen with “Deep Seek,” we might witness a clear Chinese dominance in this field.

According to a report by the Global AI Research Center, Chinese AI investments surpassed $50 billion in 2023, and are expected to reach $120 billion by 2027. This rapid expansion, supported by strong government policies, could give Chinese companies unprecedented competitive capability on an international level.

Restructuring the Market and Changes in Investment Models

“Deep Seek’s” significant impact on the market is likely to reshape investment models in the AI sector.

Major companies like “Google” and “Microsoft” are expected to shift their investments towards more sustainable projects, focusing on low-cost AI technologies. Jacob Levinson, a tech analyst at Goldman Sachs, suggests, “The AI market is undergoing a major transformation, where big companies must either cut research and development costs or seek new partnerships to maintain competitiveness.”

Potential Major Mergers Among Tech Companies

A report by the Financial Times indicates that many AI startups might struggle to survive due to sharp market changes. We might see a wave of mergers and acquisitions in the coming years, with major companies like “OpenAI” and “Amazon” seeking to acquire promising startups to enhance their capabilities in this field.

Changes in Labor Markets and Future Jobs

AI is not just advanced technology; it is a transformative factor that could dramatically alter job markets. According to a McKinsey report, 30% of tech jobs could be automated by 2030, affecting millions of workers in traditional sectors like programming, financial analysis, and customer service.

On the other hand, new jobs are expected to emerge in data analysis, AI system management, and data security, necessitating fundamental changes in education and vocational training systems.

What is certain is that the coming years will be crucial in determining the direction of the AI sector. Whether it leads to continued American superiority, the rise of China as a leading force, or even an economic correction leading to a reassessment of investment value in this sector, AI will remain at the core of technological and economic transformation for decades to come.

With all these developments, the big question remains: Will “Deep Seek” reshape the global AI landscape? And will Western companies be able to keep up with this unexpected challenge?

The coming days will reveal the impact of this technological upheaval on the global economy and the future of AI in the United States and China.