Investing.com -- Chinese startup DeepSeek has rattled U.S. markets with its latest artificial intelligence model, sparking fresh concerns over China’s AI capabilities despite continued U.S. restrictions on advanced chip exports.

DeepSeek’s AI chatbot quickly became the most downloaded free app on Apple’s U.S. App Store within a week of its launch, surpassing OpenAI’s ChatGPT. The company’s new R1 reasoning model is said to rival OpenAI’s equivalent, while its DeepSeek V3 foundation model competes with top-tier AI systems, both open and closed source.

What sets DeepSeek apart is efficiency. The company claims its model was trained using just $6 million worth of computing power, far less than the tens of millions typically spent by U.S. tech giants. However, the startup still relies on Nvidia’s H800 chips—designed to comply with U.S. export controls and now subject to expanded sanctions.

Despite DeepSeek’s rapid rise, analysts say it does not mark a technological turning point. This wasnt a ‘Sputnik moment’ for China, Capital Economics analyst adding that DeepSeek has caught up to existing U.S. technology but hasn’t surpassed it.

U.S. chip curbs have limited China’s ability to push the frontier of AI innovation, forcing companies to optimize existing resources rather than break new ground. While China has ramped up domestic semiconductor production, it remains behind in cutting-edge chipmaking, with much of its progress dependent on foreign technology now under tight restrictions.

The success of DeepSeek has already prompted scrutiny from U.S. tech firms, with reports suggesting that some are probing whether the company had unauthorized access to data. Meanwhile, policymakers in Washington are reportedly considering further tightening restrictions on AI-related exports to China.

As tensions rise, China and the U.S. are expected to continue diverging in AI development, with China remaining a fast follower rather than a global leader in cutting-edge AI innovation.