Why China’s DeekSeek is Making the Tech Industry Jittery

DeepSeek, a relatively new Chinese AI startup, has quickly gained attention and sparked both amazement and concern in Silicon Valley. Despite being a little over a year old, the company has unveiled AI models that rival the performance of the world’s top chatbots, all while reportedly spending far less on development.

The rise of DeepSeek challenges the widespread assumption that AI will always require large computing energy and power amounts. Global tech stocks saw a sharp decline on January 27 as excitement over DeepSeek’s innovations grew, raising concerns for U.S.-based competitors and hardware providers like Nvidia.

DeepSeek focuses on open-source AI models, allowing developers worldwide to review and enhance its software. The firm’s mobile application launched in January and immediately shot to the top of the iPhone downloads in the U.S.

Unlike other chatbots, DeepSeek’s app stands out by explaining its reasoning before responding to prompts. According to the company, its first release, R1, offers performance comparable to the latest ChatGPT version and provides licenses for others to build on the technology at a much lower cost.

DeepSeek claims R1 delivers competitive or superior results on industry benchmarks like AIME 2024 for math tasks and AlpacaEval 2.0 for Q&A performance. Additionally, it has a high ranking on the Arena Chatbot, a leaderboard associated with UC Berkeley.

DeepSeek hasn’t revealed all of the expenditures associated with its development, but it seems to accomplish comparable outcomes to Meta and OpenAI’s AI models at a much lesser cost. This calls into question the need for significant expenditures on state-of-the-art AI chips from firms such as Nvidia. It also highlights the effects of U.S. export restrictions on cutting-edge semiconductors to China, designed to impede technical breakthroughs such as DeepSeek’s.

Since the debut of its first model in 2023, DeepSeek has been closely monitored. In November, the company unveiled its R1 model, made to emulate human thought processes. This technology powers its chatbot app, which has become a popular and cost-effective alternative to OpenAI’s offerings.

By January 25, the app had been downloaded over 1.5 million times, becoming the top iPhone app in countries such as the U.S., UK, Canada, and China, according to App Figures.

The success of DeepSeek highlights China’s efforts to overcome U.S. export restrictions. Chinese engineers seem to have prioritized efficiency over reliance on advanced resources. Developers worldwide are already experimenting with the company’s open-source models, which could lead to innovations and cost savings across the AI industry.

However, the rise of DeepSeek also renews concerns about data privacy, particularly given that its servers are based in China. Many AI firms like Salesforce Inc. (NYSE: CRM) may have to rethink their AI projects so that they can compete favorably against the options coming out of China.

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