The rapid rise of DeepSeek AI, a Chinese-developed app, has left Silicon Valley reeling after it surpassed ChatGPT as the top free app on Apple's App Store.

The move has shaken investor confidence, with major technology firms seeing significant declines in stock value, particularly in Europe.

Following DeepSeek's surge in popularity, shares in tech giants such as Nvidia, Microsoft, and Meta have been hit, with European stocks experiencing steeper drops.

ASML, a key supplier of chip equipment, saw its shares fall by more than 10 per cent, while Siemens Energy, a supplier of AI-related hardware, saw a dramatic 21 per cent decline.

DeepSeek's impact comes as a surprise, particularly given the longstanding belief that the United States held an unassailable lead in AI development.

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The app is powered by the DeepSeek-V3 model, a significantly cheaper and more efficient alternative to the billions spent by US-based companies.

At an estimated development cost of under $6 million, DeepSeek’s model is already on par with the advanced systems produced by competitors like OpenAI.

Founded in 2023 by Liang Wenfeng in Hangzhou, China, DeepSeek AI is the product of years of strategic planning.

Liang, an information engineering graduate, reportedly secured a stockpile of Nvidia A100 chips, now restricted from export to China, and used them to create a more cost-effective and powerful AI model.

This move has thrown a wrench into the effectiveness of US export controls aimed at curbing China’s AI capabilities.

DeepSeek’s success comes amid the backdrop of stringent export restrictions on AI-related technology to China, which has led local developers to find alternative solutions.

By combining high-end chips with cheaper alternatives, DeepSeek’s team has created AI models that require less computational power and are far cheaper to produce than previously anticipated.

The app’s growing presence signals a shift in the global AI landscape, with US firms now facing heightened competition from China.

As DeepSeek continues to grow, it remains to be seen how American companies will respond to the challenge posed by a new force in the AI market.