The emergence of the DeepSeek AI model from Chinese hedge fund High Flyer is rattling investors and competition is poised to explode.

The model — which cost $5.6 million to develop compared with more than $1 billion spent to create U.S.-based OpenAI’s ChatGPT and Google’s Gemini — will push companies to innovate more cheaply, Carey Ransom, managing director at venture capital firm BankTech Ventures, told Bank Automation News. 

“Competition will likely explode … [as] it does anytime the cost to build and start things drops immensely,” he said. 

‘Kick in the pants’ for U.S. innovators 

Eyal Eliakim, head of AI at venture capital firm Team8, agrees. 

“Reductions in the cost of developing and utilizing AI technology will make AI accessible to a broader population and increase its adoption, which will lead, in turn, to further innovation around applications that leverage AI,” Eliakim said.  

DeepSeek’s model is influencing market valuations of existing AI companies, a theme to follow as more innovative companies surface with lower operational costs, Eliakim said. 

Tom Warsop, president and chief executive at payments giant ACI Worldwide, told BAN that DeepSeek is “probably a good kick in the pants” for U.S. and European companies in terms of providing lessons in efficiency.  

Already, banks and other businesses have started embedding DeepSeek in their workflows, John Kain, head of worldwide business and market development for banking and capital markets at Amazon Web Services, told BAN. DeepSeek’s low-cost model will allow startups to experiment with their ideas at low costs which will spur innovation, he said. 

AWS did not provide the names of businesses and banks using DeepSeek. 

DeepSeek skepticism, tariff uncertainty 

While DeepSeek claims that it used old Nvidia chips to create its AI model, there is skepticism around the actual cost to build the model. The White House and the Federal Bureau of Investigation are probing whether China gained access to new Nvidia chips through shell companies in Singapore, as first reported by Bloomberg on Jan. 30. 

“Many are trying to validate these claims, and how real or sensational they may actually be,” BankTech Venture’s Ransom said. DeepSeek’s company’s link to the Communist Chinese Party will make enterprises think before embracing the solution, he said. 

According to Nvidia’s third-quarter 2024 earnings report, sales to Singapore nearly tripled year over year to $7.6 billion during the quarter after chip export restrictions were imposed in October 2022, according to the company’s Nov. 20 earnings report. 

Investors are pointing to Nvidia’s rising Singapore exposure but that’s a “bill-to,” not a “ship-to” destination for the technology, according to Bank of America’s Global Equities research report, published today. 

With new tariffs being levied on China by President Donald Trump, Nvidia stock is taking a beating due to trade restrictions. This could hinder Nvidia’s growth as well as DeepSeek development, the report stated. 

Nvidia’s stock has dropped by 5% to $119 since DeepSeek’s introduction to the market last Monday, according to Nasdaq data. 

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