DeepSeek: The Chinese AI App Captivating the World

DeepSeek: The Chinese AI App Captivating the World.

A Chinese-developed artificial intelligence (AI) model named DeepSeek has rapidly ascended to the top of the Apple Store's download charts, surprising investors and leading to declines in several technology stocks.

Launched on January 20, it quickly captivated AI enthusiasts before garnering widespread attention from the entire technology sector and beyond.

Former US President Donald Trump characterized this development as a "wake-up call" for American companies, emphasizing the need to prioritize competitive strategies.

The uniqueness of DeepSeek lies in the company's assertion that it was developed at a significantly lower cost compared to leading models such as those from OpenAI, primarily due to its reliance on fewer advanced chips.

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This revelation prompted chip manufacturing giant Nvidia to experience a staggering loss of nearly $600 billion (£482 billion) in market value on Monday, marking the largest single-day decline in US history.

DeepSeek also raises critical concerns regarding the United States' efforts to curb China's ambitions for technological dominance, particularly in light of existing restrictions on the export of advanced chips to China.

In response, Beijing has intensified its focus on AI, with President Xi Jinping designating it as a top priority. Start-ups like DeepSeek play a vital role as China shifts its focus from traditional manufacturing sectors—such as textiles and furniture—to advanced technologies, including chips, electric vehicles, and AI.

What insights do we have regarding DeepSeek?

What Is DeepSeek?

DeepSeek can be described as an AI-driven chatbot, akin to ChatGPT, in its most basic form.

This application is available for free download on the Apple App Store, where DeepSeek claims to be designed "to answer your questions and enhance your life efficiently."

The underlying AI model, known as R1, boasts approximately 670 billion parameters, making it the largest open-source large language model to date, as noted by Anil Ananthaswamy, author of Why Machines Learn: The Elegant Math Behind Modern AI.

It is said to possess capabilities comparable to OpenAI's O1 model, which powers ChatGPT, particularly in areas such as mathematics, coding, and reasoning.

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Similar to various other Chinese AI models, including Baidu's Ernie and ByteDance's Doubao, DeepSeek is trained to avoid politically sensitive inquiries.

When we asked about the events at Tiananmen Square on June 4, 1989, DeepSeek refrained from providing any details regarding the massacre, a subject considered taboo in China.

It replied: "I am sorry, I cannot answer that question. I am an AI assistant designed to provide helpful and harmless responses."

Chinese government censorship was perceived as a significant obstacle to the advancement of artificial intelligence. However, DeepSeek seems to have utilized an open-source model for its training, allowing it to execute intricate tasks while selectively omitting certain information.

The developers assert that this was achieved at a relatively low cost, claiming that the total expenditure amounted to $6 million (£4.8 million), which is modest in comparison to the billions invested by AI companies in the United States.

The specifics of their methodology remain ambiguous. Reports indicate that the founder of DeepSeek accumulated a stockpile of Nvidia A100 chips, which have been prohibited from export to China since September 2022.

Experts suggest that this collection, estimated to be around 50,000 units, enabled the creation of a highly capable AI model by combining these advanced chips with more affordable, less advanced alternatives.

Who Created DeepSeek?

DeepSeek was established in December 2023 by Liang Wenfeng, who subsequently launched the company's inaugural AI large language model the following year.

Information regarding Liang is limited; he is an alumnus of Zhejiang University, where he earned degrees in electronic information engineering and computer science. However, he has recently gained significant attention on the global stage.

Liang was recently observed attending a meeting convened by China's Premier Li Qiang, which underscores DeepSeek's increasing influence within the AI sector.

In contrast to many American AI entrepreneurs hailing from Silicon Valley, Mr. Liang possesses a background in finance as well.

He serves as the CEO of a hedge fund named High-Flyer, which employs AI to analyze financial data for investment decision-making, a practice known as quantitative trading. In 2019, High-Flyer became the first quantitative hedge fund in China to secure over 100 billion yuan (approximately $13 million).

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In a speech he gave that year, Liang said, "If the US can develop its quantitative trading sector, why not China?"

In an interview last year, he said China's AI sector "cannot remain a follower forever".

He continued: "Often, we say there's a one or two-year gap between Chinese and American AI, but the real gap is between originality and imitation. If this doesn't change, China will always be a follower."

Asked why DeepSeek's model surprised so many in Silicon Valley, he said: "Their surprise stems from seeing a Chinese company join their game as an innovator, not just a follower - which is what most Chinese firms are accustomed to."

How Will This Impact The US Companies?

DeepSeek's accomplishments challenge the notion that substantial budgets and premium chips are the sole means of progressing in artificial intelligence, a perspective that has fostered apprehension regarding the future of high-performance chips.

"DeepSeek has proven that cutting-edge AI models can be developed with limited compute resources," says Wei Sun, principal AI analyst at Counterpoint Research.

"In contrast, OpenAI, valued at $157 billion, faces scrutiny over its ability to maintain a dominant edge in innovation or justify its massive valuation and expenditures without delivering significant returns."

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On January 27, the potential for reduced costs within the company caused significant turbulence in financial markets, resulting in a decline of over 3% in the tech-focused Nasdaq index. This downturn prompted a widespread sell-off that affected semiconductor manufacturers and data centers globally.

Nvidia experienced the most severe impact, with its stock price plummeting by 17% throughout the day.

Previously the most valuable company in the world by market capitalization, Nvidia dropped to third place behind Apple and Microsoft on Monday, as its market value decreased from $3.5 trillion to $2.9 trillion, according to Forbes.

What Is China’s Reaction?

The emergence of DeepSeek represents a significant advantage for the Chinese government, which has been striving to develop technology that is independent of Western influence.

Although the Communist Party has not yet issued a statement, Chinese state media has been quick to highlight that major players in Silicon Valley and Wall Street are reportedly "losing sleep" due to DeepSeek's impact, which is said to be "overturning" the US stock market.

"In China, DeepSeek's advances are being celebrated as a testament to the country's growing technological prowess and self-reliance," says Marina Zhang, an associate professor at the University of Technology Sydney.

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"The company's success is seen as a validation of China's Innovation 2.0, a new era of homegrown technological leadership driven by a younger generation of entrepreneurs."

However, she also warned that this sentiment may also lead to "tech isolationism".

DeepSeek's rapid rise as an advanced AI chatbot showcases China's growing capabilities in the tech industry. Its impressive performance, especially at a fraction of the cost of Western models, signals a new era of AI innovation.

However, while the app’s efficiency and accessibility are commendable, there are growing concerns about security and data privacy, particularly given its origins in China. As the global tech landscape shifts, it’s essential to carefully evaluate the potential risks posed by AI models tied to nations with different data privacy standards and government oversight practices. The future of DeepSeek remains both exciting and uncertain.