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What Is China’s DeepSeek and Why Is It Freaking Out the AI World?

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(Bloomberg) — DeepSeek, a Chinese artificial-intelligence startup that’s just over a year old, has stirred awe and consternation in Silicon Valley after demonstrating AI models that offer comparable performance to the world’s best chatbots at seemingly a fraction of their development cost.

Global technology stocks tumbled on Jan. 27 as hype around DeepSeek’s innovation snowballed and investors began to digest the implications for its US-based rivals and AI hardware suppliers such as Nvidia Corp.

What exactly is DeepSeek?

DeepSeek was founded in 2023 by Liang Wenfeng, the chief of AI-driven quant hedge fund High-Flyer. The company develops AI models that are open-source, meaning the developer community at large can inspect and improve the software. Its mobile app surged to the top of the iPhone download charts in the US after its release in early January.

The app distinguishes itself from other chatbots like OpenAI’s ChatGPT by articulating its reasoning before delivering a response to a prompt. The company claims its R1 release offers performance on par with the latest iteration of ChatGPT. It is offering licenses for individuals interested in developing chatbots using the technology to build on it, at a price well below what OpenAI charges for similar access.

How does DeepSeek R1 compare to OpenAI or Meta AI?

DeepSeek says R1’s performance approaches or improves on that of rival models in several leading benchmarks such as AIME 2024 for mathematical tasks, MMLU for general knowledge and AlpacaEval 2.0 for question-and-answer performance. It also ranks among the top performers on a UC Berkeley-affiliated leaderboard called Chatbot Arena. Though not fully detailed by the company, the cost of training and developing DeepSeek’s models appears to be only a fraction of what’s required for OpenAI or Meta Platforms Inc.’s best products. The greater efficiency of the model puts into question the need for vast expenditures of capital to acquire the latest and most powerful AI accelerators from the likes of Nvidia. It also focuses attention on US export curbs of such advanced semiconductors to China — which were intended to prevent a breakthrough of the sort that DeepSeek appears to represent.

When did DeepSeek spark global interest?

The AI developer has been closely watched since the release of its earliest model in 2023. Then in November, it gave the world a glimpse of its DeepSeek R1 reasoning model, designed to mimic human thinking. That model underpins its chatbot app, which exploded in popularity as a much cheaper OpenAI alternative, with investor Marc Andreessen calling it “AI’s Sputnik moment.” The DeepSeek mobile app was downloaded 1.6 million times by Jan. 25 and ranked No. 1 in iPhone app stores in Australia, Canada, China, Singapore, the US and the UK, according to data from market tracker App Figures.

What did we learn from the giant stock market reaction?

For much of the past two-plus years since ChatGPT kicked off the global AI frenzy, the industry has bet that improvements in AI will require heavy spending on the most advanced chips from companies like Nvidia Corp. and the building of massive, energy-hungry data centers. The DeepSeek breakthrough suggests AI models are emerging that can achieve a comparable performance using less sophisticated chips for a smaller outlay. In response, investors dumped shares of Nvidia, semiconductor machine maker ASML Holding NV and other companies that had soared on the prospect of booming demand for the most cutting-edge AI hardware. DeepSeek’s success also calls into question the vast spending by companies like Meta and Microsoft Corp. — each of which has committed to capex of $65 billion or more this year, largely on AI infrastructure. Shares in Meta and Microsoft fell less than Nvidia, with investors weighing the potential for substantial savings on their AI investments. Chinese names linked to DeepSeek, such as Iflytek Co., climbed.

Some industry watchers suggested the industry overall could benefit from DeepSeek’s breakthrough if it pushes OpenAI and other US providers to cut their prices, spurring faster adoption of AI.

How could DeepSeek affect the global strategic competition over AI?

AI is the key frontier in the US-China contest for tech supremacy. Washington has banned the export to China of equipment such as high-end graphics processing units in a bid to stall the country’s advances. DeepSeek’s progress suggests Chinese AI engineers have worked their way around those restrictions, focusing on greater efficiency with limited resources. Still, it remains unclear how much advanced AI-training hardware DeepSeek has had access to.

Already, developers around the world are experimenting with DeepSeek’s software and looking to build tools with it. This could help US companies improve the efficiency of their AI models and quicken