The U.S. Commerce Department is investigating whether DeepSeek, the Chinese artificial intelligence firm whose recent model has disrupted the tech industry, used restricted U.S. chips that are barred from export to China, according to a source familiar with the matter.

Last week, DeepSeek introduced a free AI assistant that it claims operates with significantly lower data usage and at a fraction of the cost of U.S. models. Within days, the app became the most downloaded on Apple's App Store, raising concerns about the United States' competitive edge in AI. The market reaction was swift, contributing to a selloff that wiped approximately $1 trillion from U.S. tech stocks.

Concerns Over AI Chip Export Controls

Current U.S. restrictions prohibit the export of advanced Nvidia AI processors to China. However, the source indicated that smuggling networks in Malaysia, Singapore, and the United Arab Emirates have facilitated the illegal shipment of restricted chips.

The Commerce Department and DeepSeek have not responded to requests for comment.

A spokesperson for Nvidia acknowledged that many of its customers operate through Singapore-based business entities, often using them for product shipments to the U.S. and other Western markets. The company emphasized that it requires all partners to comply with export regulations, stating:

"We insist that our partners comply with all applicable laws, and if we receive any information to the contrary, we act accordingly."

Singapore’s Ministry of Trade and Industry, responding to concerns, cited Nvidia’s statement and asserted there is no evidence that DeepSeek obtained export-controlled chips from Singapore. While the ministry did not confirm whether DeepSeek accessed restricted Nvidia chips through intermediaries, it reiterated Singapore's commitment to upholding the rule of law and taking decisive action against violations.

"We expect U.S. companies, like Nvidia, to comply with U.S. export controls and our domestic legislation," the ministry stated. "Our customs and law enforcement agencies will continue to collaborate closely with their U.S. counterparts."

DeepSeek’s AI Chip Access Under Scrutiny

DeepSeek has publicly stated that it used Nvidia’s H800 chips, which were legally purchasable in 2023. Reuters has not determined whether the company has accessed any banned U.S. chips.

Reports also suggest that DeepSeek possesses Nvidia’s H20 chips, a less powerful variant that is still permitted for shipment to China. However, U.S. officials—including those in the Biden administration and newly appointed Trump officials—are considering additional restrictions on these chips.

Dario Amodei, CEO of AI company Anthropic, commented on the situation earlier this week, stating:

"A substantial fraction of DeepSeek's AI chip fleet appears to consist of chips that haven't been banned (but should be), chips shipped before restrictions were imposed, and some that seem very likely to have been smuggled."

The U.S. has implemented sweeping restrictions on AI chip exports to China and is preparing to expand controls to other nations. The ongoing investigation into DeepSeek’s chip sourcing will likely shape future regulatory actions.