DeepSeek: The Rise of a Chinese AI Challenger

In a significant shift in the artificial intelligence landscape, the Chinese AI application DeepSeek has emerged as a formidable competitor to established players like ChatGPT. Launched in January, DeepSeek has quickly ascended to the top of the free applications chart on Apple’s App Store in major markets, including the United States, the United Kingdom, and China. This surge in popularity challenges the long-held belief that the United States is the unassailable leader in AI technology. With its innovative approach and cost-effective model, DeepSeek is reshaping the competitive dynamics of the AI industry.
DeepSeek’s Innovative Technology
DeepSeek is powered by the open-source DeepSeek-V3 model, which its developers claim was created with a budget of less than $6 million. This figure stands in stark contrast to the billions spent by competitors like OpenAI. However, this claim has sparked debate within the AI community, with some experts questioning the feasibility of such a low-cost development. The recent launch of DeepSeek-R1 has further fueled interest, as the company asserts that its performance rivals that of OpenAI’s latest models in tasks such as mathematics, coding, and natural language reasoning.
The success of DeepSeek can be attributed to its unique approach to AI development. In response to U.S. restrictions on advanced chip exports to China, Chinese developers have collaborated and experimented with new technologies. This has led to the creation of AI models that require significantly less computing power, making them more accessible and affordable. As a result, DeepSeek’s innovative technology could potentially disrupt the AI market, offering a low-cost alternative to existing solutions.
Market Reactions and Implications
The rise of DeepSeek has sent shockwaves through the stock market, particularly affecting shares of U.S.-based AI companies like Nvidia, Microsoft, and Meta. Following the news of DeepSeek’s success, these companies experienced a notable decline in their stock prices. For instance, ASML, a Dutch chip equipment manufacturer, saw its shares drop by over 10%, while Siemens Energy, which produces AI-related hardware, plunged by 21%. Analysts have expressed concerns that the emergence of a low-cost Chinese AI model could threaten the profitability of established rivals, especially given their substantial investments in more expensive AI infrastructure.
Fiona Cincotta, a senior market analyst at City Index, noted that the concept of a low-cost Chinese AI alternative had not been widely anticipated, catching the market off guard. The potential for DeepSeek to disrupt the investment landscape for the entire AI supply chain has raised alarms among investors. Vey-Sern Ling, a technology equity advisor based in Singapore, echoed these sentiments, suggesting that DeepSeek’s success could derail the investment case for many AI-related companies.
The Vision Behind DeepSeek
DeepSeek was founded in 2023 by Liang Wenfeng in Hangzhou, China. A graduate in information and electronic engineering, Liang also established the hedge fund that financed DeepSeek. Reports indicate that he amassed a stockpile of Nvidia A100 chips, which are now banned from export to China. This collection, estimated to be around 50,000 chips, has allowed him to pair these advanced components with lower-end chips still available for import, enabling the development of DeepSeek.
Liang’s vision for DeepSeek has garnered attention at high levels, including a recent meeting with Chinese Premier Li Qiang. In a July 2024 interview, Liang expressed surprise at the sensitivity surrounding pricing in the AI market. He stated, “We didn’t expect pricing to be such a sensitive issue. We were simply following our own pace, calculating costs, and setting prices accordingly.” This insight reflects the broader implications of DeepSeek’s emergence, as it challenges traditional pricing models in the AI industry.
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