DeepSeek R1, a new Chinese artificial intelligence (AI) app, has shocked the tech world, especially in America, BBC News reports.

“Deepseek R1 is AI’s Sputnik moment,” says Marc Andreessen.

The DeepSeek Sputnik moment caused a big drop in major tech stocks. For exampe, Nvidia, a key AI chip maker, lost nearly $600bn in value, the largest drop ever in the US stock market.

The significant market reaction to DeepSeek’s AI model launch was largely due to the astonishingly low cost of development they claimed. DeepSeek announced that they built their latest AI model for under $6 million, Reuters reports. This figure contrasts sharply with the much larger budgets of other leading AI companies like OpenAI, which reportedly spends billions on developing comparable AI technologies.

DeepSeek’s claim of achieving similar or competitive performance to models like those from OpenAI, but at a fraction of the cost, challenged the prevailing notion that high-quality AI requires massive financial investment. Therefore, investors and analysts are reassessing companies like Nvidia, whose high valuation partly rests on the continued demand for expensive AI infrastructure.

DeepSeek researchers have described their R1 release in a paper posted on GitHub. This commentary tries to explain how it works in simple terms.

Trump: this is a wake-up call

Last week Sam Altman from OpenAI and Larry Ellison from Oracle met with President Trump to announce Stargate, a huge $500bn AI project. They thought America’s data centers and chip control gave it an edge in AI.

But then Trump said that DeepSeek was a wake-up call for U.S. technology, suggesting cheaper AI could be beneficial. Not only tech but also energy stocks fell, hinting that AI might not need as much power as thought.

Sam Altman admits that DeepSeek is impressive for its price. This rivalry could push the AI race forward, much like the space race after Sputnik.

The US might rethink its chip export rules to China because of this. But rather than weakening China’s AI capabilities, the sanctions appear to be driving startups like DeepSeek to innovate, notes MIT Technology Review.

DeepSeek’s cost claims suggests a strategic advantage for China in AI development. But of course, they might just be lying about the real cost.

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