US tech giant Nvidia saw its value drop by over 16% as the growing popularity of a Chinese artificial intelligence (AI) app unsettled investors in both the US and Europe.

DeepSeek, a Chinese AI chatbot claimed to be developed at a fraction of the cost of its competitors, launched last week and swiftly became the most downloaded free app in the US.

Following DeepSeek's rapid success, Nvidia, along with other tech giants involved in AI like Microsoft and Google, experienced a significant drop in value on Monday.

In a separate development, DeepSeek announced on Monday that it would temporarily pause new registrations due to "large-scale malicious attacks" on its software.

The DeepSeek chatbot's development at a much lower cost than its rivals has raised concerns about the future of America's dominance in AI and the scale of investments US companies are planning.

Last week, OpenAI, along with other companies, pledged to invest $500 billion to develop AI infrastructure in the US.

In one of his first statements since returning to office, President Donald Trump referred to it as "the largest AI infrastructure project in history," emphasizing that it would help secure "the future of technology" in the US.

DeepSeek is built on the open-source DeepSeek-V3 model, which its developers assert was trained with an investment of around $6 million—far less than the billions invested by its competitors. However, this claim has been disputed by other AI experts.

The researchers say they utilize existing technology along with open-source code—software that is freely accessible for anyone to use, modify, or share.

DeepSeek's rise comes at a time when the US has imposed restrictions on the sale of advanced chip technology used in AI to China.

In response to limited access to imported chips, Chinese AI developers have collaborated and sought alternative technological approaches.

As a result, they have created AI models that require much less computing power compared to earlier versions.

This also means the costs are significantly lower than initially expected, which could potentially shake up the industry.

Following the launch of DeepSeek-R1 earlier this month, the company claimed its performance matched that of one of OpenAI's latest models in areas such as math, coding, and natural language reasoning.

Silicon Valley venture capitalist and Trump adviser Marc Andreessen referred to DeepSeek-R1 as "AI's Sputnik moment," drawing a comparison to the Soviet Union's 1957 satellite launch.

At the time, the US was perceived as having been caught off guard by its rival's technological achievement.

"This idea of a low-cost Chinese version hasn't necessarily been at the forefront, so it's taken the market a little bit by surprise," expressed Fiona Cincotta, senior market analyst at City Index.

"So, if you suddenly get this low-cost AI model, then that's going to raise concerns over the profits of rivals, particularly given the amount that they've already invested in more expensive AI infrastructure."

Vey-Sern Ling, a technology equity adviser based in Singapore, told the BBC that it could "potentially disrupt the investment outlook for the entire AI supply chain."

However, Wall Street banking giant Citi warned that while DeepSeek may pose a challenge to the leading positions of American companies like OpenAI, the challenges faced by Chinese firms could hinder their progress.

"We estimate that in an inevitably more restrictive environment, US access to more advanced chips is an advantage," reports from an analyst.

Meanwhile, DeepSeek said on Monday it had been the victim of a cyberattack.

"Due to large-scale malicious attacks on DeepSeek's services, we are temporarily limiting registrations to ensure continued service," it said in a statement.

"Existing users can log in as usual. Thanks for your understanding and support."