European equity markets traded down sharply Monday at the beginning of a new trading week, as the rapid success and popularity of a somewhat unknown, low cost China-based AI solution called DeepSeek was calling into question the (many) billions of dollars being poured into the AI sector.

DeepSeek – whose AI Assistant has quickly become the most downloaded app on the Apple App Store – launched its a free, open-source large-language model less than a month ago in late December. The company claims that its AI Assistant took only two months, and less than $6 million to build, using reduced-capability chips from Nvidia called H800s.

Speaking of Nvidia, it was leading a fairly steep decline in US pre-market trading, with its shares indicating a 12% drop from Friday’s closing price of $142.62. Nvidia – whose stock has more than doubled over the past year – has become one of the main been beneficiaries of the recent AI investment boom, with its chips powering much of the AI development and activity worldwide.

Led downward by Nvidia, the NASDAQ was preparing for a 4% decline on Monday, while the broad S&P 500 was indicating about 2% lower, and the Dow Jones Industrial Average about 1%. In live trading in Europe, Germany’s DAX was off just over 1%, while the UK FTSE was down 0.3%.

In addition to equity markets, Bitcoin was down almost 6% on Monday, back to below $100,000, while Ethereum is trading down more than 8%, close to the $3,000 level which it has been above since the US election in early November.

But back to DeepSeek, business news site CNBC is reporting that in a set of third-party benchmark tests, DeepSeek outperformed Meta’s Llama 3.1, OpenAI’s GPT-4o and Anthropic’s Claude Sonnet 3.5 in accuracy ranging from complex problem-solving to math and coding. DeepSeek’s latest release, called r1, is a reasoning model that also outperformed OpenAI’s latest o1 in third-party tests.

DeepSeek’s quick and low-cost success – both in terms of specs performance and in the App Store – has called into question very rapidly the virtual billions of dollars being thrown into AI development and associated things such as massive data centers and expensive chips, leading to what looks like will be a broad equity selloff once US markets open in a couple of hours. The fact that DeepSeek is based in China, and backed by Chinese quant fund called High Flyer, is also leading markets to question the US lead in all things AI.