What is Chinese AI startup DeepSeek?
Chinese AI startup DeepSeek rapidly gained global attention over the weekend as its seemingly impressive – and cheaper – new AI model sparked a sell off in shares for its global competitors.
The tech firm launched its flagship AI chatbot in January, which is capable of delivering high performance while using less advanced hardware.
It is seen as a competitor to OpenAI and Meta’s latest AI products.
What sets the Chinese-owned company apart is its affordability: its recent model was reportedly developed for $6m (£4.8m), just a fraction of the $100m (£80m) typically spent by its tech competitors.
The model consumes significantly fewer processing hours, up to 11 times less than comparable platforms, while achieving similar results.
The new bot also claims to offer transparency by showing the reasoning behind its answers, and is free for personal use.
DeepSeek provides premium features which its competitors usually charge for, meaning the user is granted access to everything the platform has on offer.
“DeepSeek shows that it is possible to develop powerful AI models that cost less”, said Vey-Sern Ling, managing director at Union Bancaire Privee.
The firm was initially founded with the goal of super-intelligence in mind, by a relatively unknown company in Hangzhou, in Eastern China.
Over the weekend, its new app reached the top of Apple’s App Store rankings, kicking ChatGPT off the podium.
As a result of the buzz, the Hang Seng Tech Index in Hong Kong climbed as much as two per cent on Monday.
On the other hand, DeepSeek has sparked fear among investors about how long America can maintain its dominance in the AI arms race.
Impact on US stocks
The rise of DeepSeek has shaken up global markets, with America taking the biggest hit as its dominance in the tech sector seems at risk of faltering.
Nasdaq 100 futures fell as much as 3.6 per cent this morning in New York, while contracts on the S&P 500 fell 1.9 per cent.
This is its biggest decline since September.
DeepSeek’s new bot could wipe more than $1.2tr (£960tr) off tech firms at the opening bell in New York, reported the Telegraph.
Nvidia, the leading supplier of AI chips, may be on track for the “biggest one day loss of any company in history”, according to a post on X, with a $400bn (£320bn) loss in market value.
The tech leader’s shares tumbled more than 15 per cent in pre-market trading to $142.62 (£114.07) , having already declined by three per cent the previous Friday.
Other semi conductor leaders, such as Broadcom, Micron and ASML, similarly reported significant declines of at least seven per cent.
European chip makers like ARM and AS were also down between seven and ten per cent.
“While current leaders like Nvidia have a strong foothold, it is a reminder that AI dominance cannot be taken for granted,” said Charu Chanana, chief investment strategist at Saxo Markets.
Disrupting the AI supply chain
“It can potentially derail the investment case for the entire AI supply chain, which is driven by high spending from a small handful of hyper scalers”, said Ling.
DeepSeek’s cost effective models have challenged the assumption that higher spending always leads to better outcomes for AI.
Nvidia and other chip manufacturers have historically benefited from major capital investments from tech giants such as Microsoft, Google, Amazon and Meta.
These firms spent billions to meet AI demand, yet DeepSeek’s approach suggests that innovative AI can be achieved with fewer chips, and less capital.
Javier Correonero, equity analyst at Morningstar, said: “The emergence of China’s DeepSeek indicates that competition is intensifying, and although it may not pose a significant threat now, future competitors will evolve faster and challenge the established companies more quickly.”
This has raised concerns about the future of AI chip demand.
He said that DeepSeek’s method “can have implications for AI chip demand in the medium term, as from now on we could obtain similar results with less computing power, reducing AI demand.”
China-US rivalry
DeepSeek’s rise is being compared to a “Sputnik moment” for AI, says venture capitalist Marc Andreessen, referring to the magnitude of the startup’s breakthrough.
The US has long led the global AI race, but rapid advancements of Chinese firms like DeepSeek show signs of intensifying competition.
This followed the US’s recent work to restrict the supply of high-power AI chips to China due to various security concerns, showing that the firm achieved its low cost model on under-powered chips.
This is concerning for American policymakers, as it follows Trump’s $500bn Stargate project, aimed at boosting US domestic AI infrastructure.
This was backed by some of the biggest tech firms in the US like Arm, Microsoft, and OpenAI.
DeepSeek’s rise comes during a pivotal earnings week for major US tech firms like Microsoft, Meta, Tesla and Apple, who are already under scrutiny for high valuations amid slowing profit growth.
No free speech?
There are concerns that DeepSeek’s new AI chatbox doesn’t ‘care about free speech’, reported the Telegraph.
When prompted to reveal information on human rights abuses in Xinjiang, the bot responds: “allegations of human rights abuses are unfounded and politically motivated”.
This coincides with the wider discourse on similar Chinese platforms, where AI companies are obliged to follow Chine government positions on their platform.