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AI Disruption: The DeepSeek Effect on Wall Street, Governments and Beyond

The past week has been full of headlines regarding DeepSeek AI. So what lessons can we learn from this whirlwind of media stories and the corresponding reactions from governments and Wall Street?

A human silhouette filled with graphs, data points and other technology motifs to indicate AI.
On Monday morning, Jan. 27, 2025, the Nasdaq financial world was in a mini meltdown over headlines regarding a Chinese company named DeepSeek, which announced major breakthroughs in AI — even with a limited budget. For example, one NVIDIA ETF lost 51 percent of it value in one day.

So why did DeepSeek cause such a reaction?

According to Reuters, “Chinese startup DeepSeek's launch of its latest AI models, which it says are on a par or better than industry-leading models in the United States at a fraction of the cost, is threatening to upset the technology world order.

“The company has attracted attention in global AI circles after writing in a paper last month that the training of DeepSeek-V3 required less than $6 million worth of computing power from Nvidia H800 chips.

“DeepSeek's AI Assistant, powered by DeepSeek-V3, has overtaken rival ChatGPT to become the top-rated free application available on Apple's App Store in the United States. …”

You can learn more about DeepSeek in this video:

EARLY LESSONS LEARNED FROM DEEPSEEK AI ANNOUNCEMENTS


1) Investing in artificial intelligence companies will continue to be a roller coaster ride. This reality, as NVIDIA investors have learned even prior to the DeepSeek announcements, applies to more that just financial investments. There are numerous companies in this space that are striving for attention and investments of time and end-user and enterprise pilots. In the coming years, there will be many claims and counter-claims by numerous companies that want you to jump to their solutions because they offer game-changing results or different price points. The challenge will be to know when to change products/companies, or add more products to the suite of tools you are using now.

2) U.S. versus Chinese AI companies will present many challenges and claims to unpack for individuals and governments. Beyond data and security issues (which we will cover in No. 3), there will be claims and arguments from different sides, in a similar way that TikTok battles YouTube, Facebook, Instagram and others for the attention of global users. We are in a global generative AI (GenAI) race for supremacy.

As CNBC highlighted, "China’s DeepSeek AI dethrones ChatGPT on App Store."

“On Monday, Chinese artificial intelligence startup DeepSeek took over rival OpenAI’s coveted spot as the most-downloaded free app in the U.S. on Apple’s App Store, dethroning ChatGPT for DeepSeek’s AI Assistant. Global tech stocks sold off and were on pace to wipe out billions in market cap. …

“The buzz around DeepSeek began picking up steam earlier this month, when the startup released R1, its reasoning model that rivals OpenAI’s o1. It’s open-source, meaning that any AI developer can use it, and has rocketed to the top of app stores and industry leaderboards, with users praising its performance and reasoning capabilities. …”

3) There are many data, cybersecurity and even national security concerns to address with DeepSeek. Here are just a few of the articles on this security topic over the past few days:

CBS News: "DeepSeek AI raises national security concerns, U.S. officials say" — "'At the President's direction, the NSC and others in the U.S. government work in many ways to address concerns involving AI, China and data security,' agency spokesperson Brian Hughes told CBS News in an email. 'As the President has underscored, U.S. policy is to ensure that the United States leads the world in AI.'"

New York Post: "DeepSeek AI collects, stores US user data in China – sparking eerily similar national security concerns that forced TikTok crackdown" — “'What sets this context apart is that DeepSeek is a Chinese company based in China,' said Angela Zhang, a law professor at the University of Southern California focused on Chinese tech regulations.

“'This raises the question of whether the collection of data such as IP addresses and keystroke patterns could pose a national security threat,' Zhang added.”

Reuters: "Sensitive DeepSeek data exposed to web, cyber firm says" — "New York-based cybersecurity firm Wiz says it has found a trove of sensitive data from the Chinese artificial intelligence startup DeepSeek inadvertently exposed to the open Internet.

"In a blog post, published Wednesday, Wiz said that scans of DeepSeek's infrastructure showed that the company had accidentally left more than a million lines of data available unsecured. Those included digital software keys and chat logs that appeared to capture prompts being sent from users to the company's free AI assistant."

Time: "Why DeepSeek Is Sparking Debates Over National Security, Just Like TikTok" — “… However, other privacy experts argue that DeepSeek’s data collection policies are no worse than those of its American competitors — and worry that the company’s rise will be used as an excuse by those firms to call for deregulation. In this way, the rhetorical battle over the dangers of DeepSeek is playing out on similar lines as the in-limbo TikTok ban, which has deeply divided the American public.

“'There are completely valid privacy and data security concerns with DeepSeek,' says Calli Schroeder, the AI and Human Rights lead at the Electronic Privacy Information Center (EPIC). 'But all of those are present in U.S. AI products, too.'”

4) Enterprises will have an even greater struggle with “bring your own AI” (BYOAI) or “shadow AI” because of these frequent AI announcements and free online tools. I brought this topic up several times in the past two years, and the trend is set to accelerate with new “hot” AI tools being released from China and elsewhere. See these detailed articles on this topic: "Generative AI Guardrails: How to Address Shadow AI," and, "Has generative AI quietly ushered in a new era of shadow IT on steroids?"

5) AI disruption will be commonplace, along with claims that will be closer to deepfakes than AI breakthroughs — so do your homework and try before you buy.   
See this VentureBeat article for more on this: “DeepSeek and its R1 model aren’t wasting any time rewriting the rules of cybersecurity AI in real-time, with everyone from startups to enterprise providers piloting integrations to their new model this month.

"R1 was developed in China and is based on pure reinforcement learning (RL) without supervised fine-tuning. It is also open source, making it immediately attractive to nearly every cybersecurity startup that is all-in on open-source architecture, development and deployment. …”

Also, see this from Yahoo: "Analysts offer blunt take on DeepSeek AI panic" — “But Wall Street veteran and portfolio manager Chris Versace recently highlighted that his team has tried to avoid a ‘shoot first, ask questions later’ mindset when evaluating DeepSeek's impact on tech sector leaders.

“'I have to say it's a one-year-old startup, and it's going head-to-head with some of the best and brightest minds out there,' he noted, expressing some skepticism that the new company will continue to push NVDA stock down.”

FINAL THOUGHTS


As the financial week came to a close on early Friday afternoon, Jan. 31, 2025, (when I am writing this), NVIDIA stock and the Nasdaq overall had bounced back, but still not near their all-time highs. The overall tech sector had calmed down, and the AI panic had subsided for most market watchers.

Nevertheless, this experience with DeepSeek foretells more bumpy rides ahead on the AI roller coaster that has implications for Wall Street, main street, private-sector companies and government enterprises.
Daniel J. Lohrmann is an internationally recognized cybersecurity leader, technologist, keynote speaker and author.