Microsoft (NASDAQ:MSFT) has cautioned that U.S. artificial intelligence firms are losing ground to Chinese competitors in markets outside the Western world, as China rolls out low-cost, open AI models supported by substantial state backing, the Financial Times reported on Tuesday.

Microsoft president Brad Smith told the FT that the rapid adoption of technology from Chinese start-up DeepSeek in emerging regions, including parts of Africa, illustrates how global competition in AI is intensifying. He said Chinese companies now offer competitive open-source models that benefit from government subsidies, enabling them to underprice U.S. rivals.

Research conducted by Microsoft and cited by the FT indicates that the launch of DeepSeek’s R1 large language model last year significantly boosted AI uptake across the global south, largely due to its affordability and ease of access. The findings suggest that China has moved ahead of the United States in the market for so-called open AI models, which are typically free to use and customise.

The research estimates that DeepSeek has captured around 18% of the AI model market in Ethiopia and 17% in Zimbabwe, with even higher penetration in countries where access to U.S. technology is limited.

Smith also warned that without increased investment in data centres, power generation and digital skills, the widening gap in AI adoption risks deepening economic inequalities between wealthier and poorer regions, the FT reported.

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