DeepSeek: 10 things you need to know about Chinese AI company that everyone is talking about

Worries that the emergence of DeepSeek, a low-cost Chinese artificial intelligence model would threaten the dominance of AI leaders like Nvidia, led to a rout in tech stocks on Wall Street on January 27.

Last week, Chinese startup DeepSeek launched a free AI assistant that uses less data at a fraction of the cost of incumbent services. According to a Reuters report, by Monday, the assistant had overtaken US rival ChatGPT in downloads from Apple's app store.

What is DeepSeek?

DeepSeek (DS) is 100% owned by AI-driven quant fund in China, High-Flyer. The company has attracted attention in global AI circles after writing in a paper last month that the training of DeepSeek-V3 required less than $6 million worth of computing power from Nvidia H800 chips. DeepSeek's AI Assistant, powered by DeepSeek-V3, has overtaken rival ChatGPT to become the top-rated free application available on Apple's App Store in the United States.

Who created DeepSeek?

DeepSeek is a Hangzhou-based startup whose controlling shareholder is Liang Wenfeng, co-founder of quantitative hedge fund High-Flyer, based on Chinese corporate records.

Liang's fund announced in March 2023 on its official WeChat account that it was "starting again", going beyond trading to concentrate resources on creating a "new and independent research group, to explore the essence of AGI" (Artificial General Intelligence). DeepSeek was made later that year.

It is unclear how much High-Flyer has invested in DeepSeek. High-Flyer has an office located in the same building as DeepSeek, and it also owns patents related to chip clusters used to train AI models, according to Chinese corporate records.

Why is DeepSeek causing the market rout?

Technology shares around the world slid on Monday as a surge in popularity of a Chinese discount artificial intelligence model shook investors' faith in the AI sector's voracious demand for high-tech chips.

Startup DeepSeek has rolled out a free assistant that uses lower-cost chips and fewer data, seemingly challenging a widespread bet in financial markets that AI will drive demand along a supply chain from chipmakers to data centres.

DeepSeek's recent models have raised market concerns regarding its potential impact on the competitiveness of US big tech and the broader AI capex momentum. “With the recent initial success of DeepSeek’s large language AI models, investors are grappling with concerns about potential AI price wars, Big 4’s AI capex intensity, and how to navigate investments across the various layers like enabling versus application layers,” UBS wrote in a note on January 27.

Implications on computing power demand

The market will worry about demand growth in computing power. “We have been highlighting our concern about AI's ROI, as the massive investment in GPUs (eg, just NVDA's 2024 GPU rev could > US$200bn) has generated little return. We have seen model improvement (at a high cost), but no concrete examples of AI monetisation that could justify the investments,” research firm Jefferies said in a note.

Will there be any implications for smartphones?

If smaller models work for DeepSeek, it will be potentially positive for smartphones. “We are bearish on AI smartphones as AI has gained no traction with consumers. More hardware upgrades are needed to run bigger models on the phone, which will raise costs,” Jefferies said in a note.

Bright outlook for the Chinese AI market?

Assuming DeepSeek’s multi-head latent attention (MHA) and its mixture of experts (MOE) training technique is indeed the way to go for the broader AI industry, investment bank UBS in a report stated that it sees a bright outlook for AI as potentially lower costs would accelerate AI adoption with artificial general intelligence (AGI) coming sooner than expected.

“While that means investors need to tilt their AI portfolios in favor of AI applications (our current allocation is 25-30% in the AI portfolio) and the intelligence layer (15-20%) over the enabling layer (50-60%),” the investment bank said.

Cyberattack hits DeepSeek website

Chinese startup DeepSeek said on Monday it will temporarily limit registrations due to a cyberattack after the company's AI assistant amassed sudden popularity.

The startup earlier in the day was also hit by outages on its website after its AI assistant became the top-rated free application available on Apple's App Store in the United States.

The company resolved issues relating to its application programming interface and users' inability to log in to the website, according to its status page. The outages on Monday were the company's longest in around 90 days and coincided with its sky-rocketing popularity.

How are the AI stocks doing?

NASDAQ futures closed 3% down on Monday as Nvidia lost a massive $593 billion market value, a record one-day loss for any company on Wall Street.

Nvidia was the Nasdaq's biggest drag, with its shares tumbling just under 17% and marking a record one-day loss in market capitalisation for a Wall Street stock, according to LSEG data. Other losers on the tech-heavy index Nasdaq were Broadcom Inc, which finished down 17.4%, followed by ChatGPT backer Microsoft, which fell 2.1%, and then Google parent Alphabet, which ended down 4.2%.

US President Donald Trump on DeepSeek

US President Donald Trump said on Monday that Chinese startup DeepSeek's technology should act as a spur for American companies and said it was good that companies in China have come up with a cheaper, faster method of artificial intelligence.

"The release of DeepSeek, AI from a Chinese company should be a wakeup call for our industries that we need to be laser-focused on competing to win," Trump said in Florida. "I've been reading about China and some of the companies in China, one, in particular, coming up with a faster method of AI and a much less expensive method, and that's good because you don't have to spend as much money. I view that as a positive, as an asset," Trump said.

Sam Altman's response on DeepSeek

OpenAI CEO Sam Altman on Tuesday lauded Chinese startup DeepSeek’s latest AI model, DeepSeek-R1, as “impressive,” even as the low-cost rival disrupts global markets and sends US tech stocks tumbling.

Altman took to X to comment on the rise of DeepSeek’s models, which are challenging industry leaders like OpenAI.

“DeepSeek's R1 is an impressive model, particularly around what they're able to deliver for the price,” Altman wrote. “We will obviously deliver much better models … but mostly we are excited to continue to execute on our research roadmap.”