DeepSeek's Low-Cost Model Rattles Australian AI Shares

The AI landscape has been shaken by the emergence of DeepSeek, a Chinese startup that has developed a cost-effective, open-source AI model that rivals those of established giants like OpenAI and Meta. DeepSeek's success has sent ripples through the global AI market, with Australian AI shares feeling the impact.

DeepSeek's AI assistant app, powered by the company's state-of-the-art DeepSeek-V3 model, quickly rose to the top of the App Store, dethroning OpenAI's ChatGPT. The app's popularity has raised concerns about the potential impact on Nvidia's stock price, which has dropped significantly since Friday, wiping out more than half a trillion dollars in value (Axios, 2025).



DeepSeek's R1 model, released on January 20, 2025, has been praised for its impressive performance, matching or even surpassing established models like OpenAI's o1 and Meta's Llama on various benchmarks (Financial Times, 2025). The model's cost-effectiveness, achieved by using less expensive hardware and resources, has caught the attention of investors and analysts alike.

The news of DeepSeek's success has sent shockwaves through Silicon Valley, with Nvidia's stock price dropping about 20% since Friday. The company's valuation has been significantly impacted, with more than half a trillion dollars wiped out in just a few days (Axios, 2025).

DeepSeek's open-source approach has also raised concerns about the potential impact on AI-focused ETFs and funds. Investors may reallocate their portfolios to include more exposure to cost-effective AI solutions, which could impact the overall performance of these funds (Source: "AI-related stocks took a hit on Monday morning, with Nvidia shares tumbling 14.5% as of 11 a.m. ET, while ASML shed 6.7%").

The geopolitical implications of DeepSeek's success are also significant. The company's ability to develop powerful AI models using less expensive hardware and resources challenges U.S. export controls on advanced AI hardware. This may lead to further discussions and negotiations between the U.S. and China regarding technology exports and intellectual property (Source: "The 'Sputnik' backdrop").

In conclusion, DeepSeek's low-cost, open-source AI model has rattled Australian AI shares and sent shockwaves through the global AI market. The company's success has raised concerns about the potential impact on established AI giants and their shareholders. As DeepSeek continues to make waves in the AI industry, investors and analysts will be closely watching the developments and their potential implications for the investment landscape.