A week after banning TikTok from app stores (no, it still isnt downloadable) and one day after threatening 25% tariffs on Colombia, the U.S. has taken a major blow in its ongoing trade warsovernight, Silicon Valley seems to have lost its AI dominance.The shakeup follows a release from fresh-faced Chinese AI startup DeepSeek, which on Jan. 20 updated its ChatGPT-like AI assistant with its open-source R1 reasoning model. According to Deepseeks testing, the R1 model matches OpenAIs o1 reasoning model on several metrics, all while being much, much cheaper to develop.The Wall Street Journal was the first to report on DeepSeek R1s ultra-low development cost, citing the one-year-old companys claims that it only took $5.6 million to develop the new model, vs. over $100 million from OpenAI for its equivalent.It took a little bit for the news to get out there, but DeepSeek has consequently risen to the top of the App Store, unseating ChatGPT as the most-downloaded free app. The sudden surge in attention has been hard on U.S. stocks, sending the Dow down by about 0.22%, the S&P down by 2%, and the Nasdaq down by 3.6%. More specifically, Google parent company Alphabet is down 2.89%, with Meta, Oracle, and other tech giants also seeing significant declines. Notably, data center and graphics card company Nvidia, which supplies much of the hardware powering AI development, is down 11.64%.Nvidias stock drop in particular likely has to do with claims from DeepSeek that it only needed roughly 2,000 specialized Nvidia chips to train its latest AI model, whereas leading U.S. models tend to use closer to 16,000 chips. Said claims are still awaiting verification, but if true, would poke holes in the US recent policy efforts to restrict the amount of U.S. chips Chinese developers can use.On the consumer side of things, DeepSeek promises cheaper access to higher-tier models than ChatGPT, which puts basic access to its o1 model behind a $20/month ChatGPT Plus subscription and unlimited access to the o1 model behind its pricey $200/month ChatGPT Pro plan. Unfortunately, the company seems to be suffering from success right nowservers appear to be overloaded, and Im currently not able to sign up for an account for testing. Presumably, as more people get through and get their hands on these models, it'll be easier to verify just how scared of DeepSeek U.S. companies should be.Still, the competition could prove to be a shot across the bow for U.S. AI developers, who, alongside President Trump, just announced the $500 billion Stargate Project, an initiative to build out U.S. AI infrastructure starting with a $100 billion plan to build out data centers in Texas.