Chinese artificial intelligence startup DeepSeek has temporarily restricted new user registrations following a "large-scale malicious attack" on Monday, shortly after its AI assistant became the most downloaded free application on Apple's App Store in the US.

The cyberattack coincided with the company's meteoric rise to prominence, which has triggered a significant sell-off in global technology stocks that entered its second day on Tuesday. Chipmaker Nvidia saw its shares plummet by 17 per cent on Monday, erasing approximately $593 billion in market capitalisation - marking the largest single-day loss for any company in history.

DeepSeek's status page confirmed the company was investigating the incident late Monday night Beijing time, with the attack lasting approximately two hours. While new registrations were temporarily halted, existing users maintained their ability to access the service.

The company's sudden success has captured the attention of prominent technology investors and entrepreneurs. "Deepseek R1 is AI's Sputnik moment," wrote investor Marc Andreessen on X, drawing parallels to the historic space race.

The startup, which emerged from a Chinese hedge fund's AI research unit in 2023, has garnered particular attention for developing its AI model at a fraction of the cost of its Western competitors. According to Jefferies analysts, the training cost for DeepSeek's model was "only US$5.6 million (assuming US$2/H800 hour rental cost). That is less than 10 per cent of the cost of Meta's Llama."

The market turbulence reflects growing concerns about the global AI landscape, as DeepSeek's emergence has upended the industry's perception that China was years behind its American rivals. OpenAI chief executive officer Sam Altman acknowledged the achievement, calling it an "impressive model" and adding: "We will obviously deliver much better models and also it's legit invigorating to have a new competitor!"

The ripple effects have been felt across global markets, with Japanese technology shares sliding for a second day. Advantest, a supplier to Nvidia, lost 10 per cent to add to Monday's 9 per cent drop, while tech investor SoftBank Group declined 5 per cent.

David Bahnsen, chief investment officer at The Bahnsen Group, highlighted the precarious nature of tech valuations: "What makes Monday's tech sell-off so jarring is that the valuations of many of these AI and tech companies offer no margin of error."

DeepSeek's success is particularly notable given the United States' ongoing restrictions on advanced chip exports to China. The company's ability to develop sophisticated AI models despite these constraints has led many to question both the effectiveness of export controls and the necessity of the massive investments being made by US technology companies in AI development.

The development is described as a “direct challenge to tech giants like Meta, Microsoft and OpenAI” by Bradford Levy, assistant professor of accounting at University of Chicago Booth School of Business.

“Until now, it’s been assumed their expertise in designing and operating large-scale distributed systems are essential for training state of the art models. But the development of R1 suggests otherwise – if these models can be trained using 90 per cent fewer chips, the implications for valuation models are massive,” Levy said.

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