The United States Commerce Department launched an investigation into whether China’s DeepSeek had utilised American AI chips that were prohibited from shipment to China, a source familiar with the matter disclosed.

DeepSeek, which recently unveiled an AI assistant capable of operating with reduced data and significantly lower costs than US models, gained widespread attention last week. The application swiftly became the most downloaded app on Apple’s App Store, triggering concerns over America’s dominance in artificial intelligence.

The development led to a massive sell-off in US technology stocks, wiping nearly $1 trillion from their market value.

The restrictions imposed on Nvidia’s artificial intelligence processors had been designed to prevent the company’s most advanced chips from reaching China. However, organised AI chip smuggling into China had been traced from multiple countries, including Malaysia, Singapore, and the United Arab Emirates, according to the source.

Both the Commerce Department and DeepSeek did not respond immediately to requests for comment.

An Nvidia spokesperson confirmed that many of its customers operated business entities in Singapore, which they used for shipments destined for the US and Western markets. "We insist that our partners comply with all applicable laws, and if we receive any information to the contrary, act accordingly," Nvidia stated.

Singapore’s trade ministry, in a statement issued on Saturday, cited Nvidia’s remarks and asserted that there was no reason to believe DeepSeek had acquired any export-controlled products from Singapore.

It refrained from confirming whether the Chinese firm had accessed restricted Nvidia chips via intermediaries but maintained that Singapore had always upheld the rule of law.

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

DeepSeek claimed it had lawfully purchased Nvidia’s H800 chips in 2023. Reuters had not determined whether the company had obtained other controlled chips barred from export to China.

Reports also suggested that DeepSeek possessed Nvidia’s H20 chips, which remained legally available for shipment to China. The US government under President Biden had considered restricting their sale, while recently appointed officials in the Trump administration had begun discussions on the matter.

Anthropic CEO Dario Amodei commented earlier in the week, "It appears that a substantial fraction of DeepSeek's AI chip fleet consists of chips that haven't been banned (but should be), chips that were shipped before they were banned; and some that seem very likely to have been smuggled."

The US had already implemented sweeping restrictions prohibiting the export of AI chips to China and was preparing to extend these controls to additional countries.