Why the markets are freaking out about Chinese AI newcomer DeepSeek

Chinese tech champion Huawei has emerged as Nvidia’s primary competitor in China for inference chips. The Financial Times has previously reported that it has been working with AI companies, including DeepSeek, to adapt models trained on Nvidia GPUs to run inference on its Ascend chips.

“Huawei is getting better. They have an opening as the government is telling the big tech companies that they need to buy their chips and use them for inference,” said one semiconductor investor in Beijing.

The announcement that triggered Monday’s stock market spasm over Nvidia came as the US moves to assert its leadership in AI over China, and as the biggest US tech companies prepare to report their latest earnings. US President Donald Trump said DeepSeek “should be a wake-up call for our industries that we need to be laser focused on competing to win.”

In December, DeepSeek released the V3 model, which it claimed was comparable to ones from OpenAI and Google, but trained it on a fraction of the budget with $5.6 million. The Chinese company said it used just 2,048 Nvidia chips, which could have been obtained without breaching US export controls that have throttled China’s access to US chipmakers’ latest products.

Then, last week, it unveiled its latest R1 model, a “reasoning model” that is comparable to OpenAI’s o1.

Further spooking investors, DeepSeek’s engineers were able to unlock greater performance by writing code without relying on Nvidia’s Cuda software platform, which is widely seen as crucial to the Silicon Valley chipmaker’s dominance of AI development.

“DeepSeek has leveled the playing field,” said Stephen Yiu, chief investment officer of Blue Whale Growth, the investment fund backed by billionaire Peter Hargreaves, which last month reduced its exposure to the Magnificent Seven group of big US tech companies on concerns over their huge expenditure on AI.