What is DeepSeek, and why is it important?

What is DeepSeek?

Several Chinese companies pivoted into making their various AI model offerings open source last week, sending shockwaves through the tech sector. Chinese tech startups look set to disrupt the AI space, which has, until recently, been almost singularly dominated by high-priced US tech giants and soaring valuations. Chinese competitors are poised to prove that you can compete with the US giants in the AI game for pennies on the dollar, prompting a steep pullback in key companies that service the AI sphere, specifically Nvidia (NVDA). 

Since the launch of OpenAI’s ChatGPT in late 2022, the running assumption among tech investors was that to compete in AI, you needed access to eye-wateringly expensive chipsets, and a bankroll deep enough to set up the necessary data-crunching space that AI models need to be “trained” effectively. Those exact chipsets, and that amount of funding, were previously believed to be locked away behind the walls of the US market, safely embedded in Silicon Valley after the US imposed strict trade restrictions that prevented Chinese companies from accessing US silicon.

DeepSeek comes for OpenAI's throne

DeepSeek, a tech startup funded by Chinese hedge fund High-Flyer, which stepped into the AI market to compete, has challenged US AI dominance on two fronts: they’ve proven that you can compete with expensive US AI models, and that you can do it cheaply. DeepSeek-R1, the company’s latest LLM-based offering, has made strong first impressions in the tech segment, displaying a technical capacity that rivals incumbent ChatGPT. The company also has declared that it was able to create its latest model for a mere $6 million USD, far below the billions of venture capital dollars that have been showered on the US tech segment focused on AI development.

Adding to pressures on US-based tech companies, DeepSeek made its models open source; squelching investor hopes that the key to eventual profitability in the AI game would be the proprietary nature of current AI giants. Some tech commentators have come out of the woodwork to point out that markets don’t know the exact investment cost of DeepSeek’s model-building but that the price tag likely runs much higher than DeepSeek has claimed.