What is DeepSeek AI – and why is it suddenly so important?
Shares in US technology firms including AI chip-maker Nvidia, Microsoft and Meta plunged after the rapid rise of a low-cost AI start-up DeepSeek.
A new Chinese-made AI assistant called DeepSeek has sparked market turmoil and sent shares of major technology firms plunging amid claims it operates at a fraction of the cost of many of its US rivals.
The app has surged in popularity among US users since it was released on 10 January, according to app data research firm Sensor Tower.
DeepSeek says it uses lower-cost chips and less data than US counterparts such as ChatGPT. If true, this could challenge the commonly held view that AI will drive demand along a supply chain from chipmakers to data centres.
The resulting stock market rout wiped a trillion dollars off the value of tech stocks on Monday, Mark Minevich, founding partner and chairman of New York tech investment firm Going Global Ventures (GGV) told Yahoo News.
The chatbot (which operates similarly to ChatGPT and is available free online) has become the top-rated free application available on Apple's App Store in the US, overtaking ChatGPT in terms of downloads.
On Monday the company reportedly limited new sign-ups to users with mainland Chinese phone numbers after the surge in new users caused an outage.
What is Deepseek?
Deepseek offers a ChatGPT-style chatbot which can be accessed via an app or web interface and offers most of the functions of rivals such as ChatGPT and Gemini.
The organisation offers several models, including those focused on coding, reasoning and problem solving.
In tests in January this year, DeepSeek said its model outperformed OpenAI’s latest ChatGPT o1 model on key benchmarks.
Minevich told Yahoo News: "DeepSeek is a Chinese AI startup that has sent shockwaves through Silicon Valley and global markets. The company claims to have developed a state-of-the-art large language model (LLM) comparable to OpenAI’s GPT-4 – at a mind-bogglingly low cost of just $6m (£4.8m). This contrasts sharply with US tech giants, where development costs often soar into the hundreds of millions.
"Operating under an open-source framework with an MIT licence, DeepSeek allows anyone to deploy, retrain, and customise its AI model for free. Backed by the Chinese Communist Party (CCP), DeepSeek combines cost efficiency with accessibility, positioning itself as a disruptive force in the global AI ecosystem."
Who owns DeepSeek?
Little is known about the China-based company behind DeepSeek. The company is a small Hangzhou-based startup founded by Liang Wenfeng in July 2023 when search engine giant Baidu released the first Chinese AI large-language model.
Since that point, dozens of Chinese tech companies have released AI models, but none have so far come close to matching the performance of US AI models – until DeepSeek.
Why is it unusual?
The free DeepSeek assistant uses less data and comes in at a fraction of the cost of models such as ChatGPT, possibly marking a turning point in the level of investment needed for AI.
What makes its performance even more compelling is that the government has put export controls in place to prevent the export of advanced Nvidia chips to China. DeepSeek researchers claimed in a paper last month that the company’s latest DeepSeek-V3 actually used Nvidia's cheaper H800 chips for training.
As a result, as the MIT Technology Review noted: "Rather than weakening China’s AI capabilities, the sanctions appear to be driving startups like DeepSeek to innovate in ways that prioritise efficiency, resource-pooling, and collaboration."
In total, it cost $6m to train and by contrast, OpenAI’s Sam Altman has admitted that the company’s GPT-4 model cost more than $100m to train.
What reaction has it caused?
DeepSeek has sparked a sell-off in tech stocks, particularly in companies related to AI.
Shares in AI chipmaker Nvidia fell 10%, rival Oracle dropped 8% and AI data analytics company Palantir lost 7% in pre-market trading. Microsoft and Meta also saw their share prices drop.
The launch of DeepSeek has raised questions about the sustainability of the level of spending and investment on AI by Western companies.
Microsoft has said it will spend $80bn on AI infrastructure in 2025.
Minevich said: “DeepSeek’s emergence has caused US and European tech stocks to tumble, with fears that the AI start-up’s low-cost, high-performance model could destabilise established players like OpenAI, Google, and Meta. As of now, it’s estimated that DeepSeek has erased several trillion in market cap from US tech companies.
“DeepSeek isn’t just about innovation—it’s about market disruption. By giving its AI model away for free while outperforming its Western counterparts, DeepSeek has created a pricing war that US companies, may struggle to survive. The so-called 'Magnificent 7' (Apple, Microsoft, Alphabet, Amazon, Meta Platforms, Nvidia and Tesla) may not be able to justify their valuations at current levels.”
For consumers, the net result could be positive, meaning it’s cheaper to use AI models going forward.
Jon Withaar, a senior portfolio manager at Pictet Asset Management, said: "We still don’t know the details and nothing has been 100% confirmed in regards to the claims, but if there truly has been a breakthrough in the cost to train models from $100m to this alleged $6m number this is actually very positive for productivity and AI end users as cost is obviously much lower meaning lower cost of access."
What is it like to use?
Reaction to DeepSeek has been favourable, but the app has been criticised for mirroring the talking points of the Chinese government.
Minevich says that the app looks capable, and could be highly useful for businesses: "DeepSeek’s open-source approach is lowering the barriers to entry for AI innovation, allowing startups and smaller businesses to compete on a global stage. This levels the playing field but also intensifies competition for US firms.”
Nonetheless, the app shows the hallmarks of its Chinese origin. For instance, it has seemed less than willing to discuss with some users the 1989 Tiananmen Square massacre – a notoriously sensitive and censored subject in China.
In addition, when asked to discuss Taiwan in a test by Yahoo News, the app answered, saying that Taiwan’s status as an independent state is ‘controversial’.
That message disappeared, replaced by one saying: “That is beyond my current scope. Let’s talk about something else.”