China’s DeepSeek Dominates iPhone Downloads, Shakes Up AI Industry

(Bloomberg) -- DeepSeek, a Chinese AI startup, has taken the tech world by storm as its eponymous AI assistant soared to the top of Apple Inc.’s iPhone download charts. This unexpected rise has sparked concerns in Silicon Valley about the sustainability of America’s dominance in artificial intelligence.

DeepSeek’s AI model is widely regarded as a formidable competitor to offerings from OpenAI and Meta Platforms Inc. What’s more, the company claims its model was developed at a fraction of the cost, sending ripples through Asia’s tech supply chain.

On Monday, Chinese tech firms associated with DeepSeek, such as Iflytek Co., saw their shares surge. Meanwhile, chipmaking equipment manufacturers like Netherlands’ ASML Holding NV and Japan’s Advantest Corp. experienced declines, reflecting fears of reduced demand for Nvidia Corp.’s AI accelerators. US stock index futures also dipped as investors grappled with the possibility of DeepSeek disrupting America’s technological edge.

Praised by prominent investor Marc Andreessen as “one of the most amazing and impressive breakthroughs,” DeepSeek’s AI assistant stands out for its transparency. The app displays its reasoning process as it responds to user queries, earning rave reviews on both Apple’s App Store and Alphabet Inc.’s Android Play Store. It currently leads the free downloads chart on iPhones in the US and ranks among the top productivity apps on the Play Store.

Founded by Liang Wenfeng, a former quantitative fund chief, DeepSeek’s open-sourced AI model is prompting a reevaluation of the massive investments companies have made to stay competitive in the AI race.

“While it’s too early to tell if DeepSeek will emerge as a viable, cost-effective alternative in the long run, initial concerns revolve around the potential erosion of US tech giants’ pricing power and the need to reassess their hefty AI spending,” said Jun Rong Yeap, an analyst at IG Asia.

Like other Chinese AI models, DeepSeek avoids politically sensitive topics, such as Tiananmen Square, President Xi Jinping, or the possibility of China invading Taiwan. This self-censorship may feel jarring to international users unfamiliar with Chinese chatbots.

DeepSeek’s success challenges the prevailing assumption that advanced AI requires ever-increasing computing power and energy. This belief has driven Nvidia and its suppliers to record-high valuations. Although the exact development costs and energy consumption of DeepSeek remain undisclosed, the startup has hinted that its expenses were significantly lower than those of OpenAI’s latest models.

Moreover, DeepSeek’s emergence from China, a country facing escalating US trade sanctions on advanced Nvidia chips, raises questions about the effectiveness of such restrictions.

“The US excels in research, innovation, and breakthroughs, but China is unmatched in engineering,” said computer scientist Kai-Fu Lee during the Asian Financial Forum in Hong Kong. “In an era of limited computing power and resources, China has mastered the art of building things efficiently.”

Insights from Bloomberg Intelligence

China’s strategic focus on AI is expected to yield significant dividends over the next two years, narrowing the development gap with the US despite semiconductor supply constraints. The nation’s growing expertise in AI underscores its strengths in software development, positioning it as the primary challenger to US dominance.