Financial and tech circles reeled as China-based AI company DeepSeek caused a significant drop in US tech stocks by outperforming OpenAI in efficiency, cost, and downloads on its latest version.

The Nasdaq 100 saw a sharp 7% decline of nearly 1,500 points down to 20,650 as investors reacted to the news that DeepSeek’s latest R-1 model generates AI outputs at a fraction of OpenAI’s cost while maintaining comparable quality.

The primary reason for DeepSeek’s impact on markets is its ability to produce high-quality AI outputs at a much lower computational cost. OpenAI’s reliance on expensive NVIDIA chips may now be in question, as DeepSeek achieves similar performance with significantly reduced hardware requirements.

This development has led to concerns that AI companies may require fewer NVIDIA chips, impacting the chipmaker’s revenue and overall stock value. Meta and other AI-heavy firms also saw stock price drops amid fears of a changing AI infrastructure landscape.

DeepSeek has rapidly gained traction, now ranking as the most downloaded app on Apple’s App Store for iPhone, surpassing ChatGPT.

The company, originally conceptualized in the early 2010s, has been operating with significantly lower financial backing than OpenAI. Reports indicate that DeepSeek spent only $5.6 million over two months to develop its latest model, compared to OpenAI’s $6.6 billion in funding.

With AI development costs decreasing, the competition between U.S. and Chinese AI firms is expected to intensify. The global AI market now faces a potential shift, as businesses and developers may reconsider their reliance on OpenAI in favor of DeepSeek AI’s more cost-effective solutions. Moving forward, U.S. tech giants will need to adapt quickly or risk falling behind in the rapidly evolving AI race.