US President Donald Trump has warned American tech firms to be “laser-focused” as China’s launch of a rival artificial intelligence (AI) bot triggered a stock market meltdown.

China’s AI assistant DeepSeek-R1 is said to rival the power of America’s ChatGPT at a fraction of the cost and computing power.

DeepSeek quickly shot to the top of Apple’s App store amid curiosity about the technology, while US chip stocks plunged.

It caused turmoil on Wall Street, wiping billions of dollars in value from Silicon Valley amid a steep selloff.

The “Sputnik moment” upended widely held views about US primacy in artificial intelligence.

Trump said on Tuesday (AEDT) that the launch of DeepSeek was a “wake-up call” to American tech firms.

He said US companies “need to be laser-focused on competing to win.”

However, Trump said the Made in China AI could also be positive and drive more American digital advancement.

“If you could do it cheaper, if you could do it [for] less [and] get to the same end result. I think that’s a good thing for us,” Trump told reporters.

“Instead of spending billions and billions, you’ll spend less, and you’ll come up with hopefully the same solution.”

DeepSeek’s AI assistant became the top-rated free application available on Apple’s App Store in the US.

But it had to temporarily limit registrations due to a cyber attack.

The company resolved issues relating to its application programming interface and users’ inability to log in to the website, according to its status page.

Little is known about the company behind DeepSeek, a small Hangzhou-based startup founded in 2023, when search engine giant Baidu released the first Chinese AI large-language model.

Since then, dozens of Chinese tech companies large and small have released their own AI models but DeepSeek is the first to be praised by the US tech industry as matching or even surpassing the performance of cutting-edge US models.

AI hits tech shares

Nasdaq posted its biggest one-day percentage drop since December 18 as the low-cost Chinese AI model prompted a steep selloff in US chipmakers.

AI leader Nvidia sank 17 per cent, and it erased about $US593 billion ($944 billion) in stock market value, the deepest ever one-day loss for a company on Wall Street, according to LSEG data.

It was more than double the previous one-day record loss, set by Nvidia in September.

An index of semiconductor stocks dropped 9.2 per cent in its biggest single-day percentage fall since March 2020.

Kim Forrest, chief investment officer at Bokeh Capital Partners in Pittsburgh, said there are still many questions about the DeepSeek model and its impact.

“Today is a drubbing for these (AI leader) stocks, but I don’t necessarily think whatever’s going to happen in the short while here — the next couple of days — is where they are ultimately valued,” she said.

Optimism over AI and gains in Nvidia and other big technology-related shares helped to drive the stock market’s sharp gains in 2024.

Among other big tech-related companies, Microsoft shares fell 2.1 per cent and Google-parent Alphabet dropped 4.2 per cent, while AI server maker Dell Technologies declined 8.7 per cent.

-with AAP