Chip giant Nvidia and other tech stocks are taking a hit Monday as Chinese artificial intelligence lab DeepSeek revealed an AI model that rivals U.S. models but was created at far lower cost than those offered by U.S. companies.

Nvidia’s stock price is fluctuating during the trading day but is down 17 percent as of this writing. In early trading, numerous tech stocks were down:

The tech-heavy Nasdaq Composite plunged more than 2.6% in early trading. The Dow Jones Industrial Average was down more than 100 points and the S&P 500 was down more than 1.5%. 

DeepSeek has traders and tech titans rattled because while ever more billions are being invested here in the U.S. in artificial intelligence projects and the high-powered computer chips needed to power them, the Chinese offering is far cheaper:

DeepSeek has surged in popularity in global app stores since the app was released earlier this month, having been downloaded1.6 million times by Jan. 25 in the U.S. and ranking No. 1 in iPhone app stores in Australia, Canada, China, Singapore, the U.S. and the U.K. Unlike ChatGPT and other major AI competitors, DeepSeek is open-source, allowing developers to offer their own improvements on the software.

The company unveiled R1, a specialized model designed for complex problem-solving, on Jan. 20, which "zoomed to the global top 10 in performance," and was built far more rapidly, with fewer, less powerful AI chips, at a much lower cost than other U.S. models, according to the Wall Street Journal.

The DeepSeek surprise is a fantastic reminder that our enemies are motivated and aggressive, and that our technological superiority is not guaranteed.

— Ben Shapiro (@benshapiro) January 27, 2025

DeepSeek did not cost billions to develop, in fact, it didn't even cost hundreds of millions:

DeepSeek, a one-year-old startup, revealed a stunning capability: It presented a ChatGPT-like AI model called R1, which has all the familiar abilities, operating at a fraction of the cost of OpenAI’s, Google’s or Meta’s popular AI models. The company said it had spent just $5.6 million training its newest AI model, compared with the hundreds of millions or billions of dollars US companies spend on their AI technologies. 

Google’s parent Alphabet is down almost six percent as of this writing, although Meta is actually up.

Will this be some huge game-changer, or are investors overreacting? Some pundits are deeply impressed with the technology:

Deepseek R1 is one of the most amazing and impressive breakthroughs I’ve ever seen — and as open source, a profound gift to the world. 🤖🫡

— Marc Andreessen 🇺🇸 (@pmarca) January 24, 2025

However, others are concerned that it poses a threat to American technological dominance:

The Chinese app drew the attention of several major players in Silicon Valley while spurring fear in some that China is threatening the perceived invincibility about the U.S. technology industry.

Despite the hype and stock market reaction, others in the industry said China has a long way to go before it can compare with the U.S.’s AI infrastructure.

One thing is for certain: AI is here to stay, and it’s changing the world—quickly.