What is DeepSeek? Why the AI startup is up-ending the US stock market

January 27, 2025 journo

A frenzy over an artificial intelligence (AI) chatbot made by Chinese tech startup DeepSeek has up-ended US stock markets and fuelled a debate over the economic and geopolitical competition between the US and China.

DeepSeek’s AI assistant became the number one downloaded free app on Apple’s App Store Monday, propelled by curiosity about the ChatGPT competitor.

Part of what is worrying some US tech industry observers is the idea that the Chinese startup has caught up with the American companies at the forefront of generative AI at a fraction of the cost.

If true, that would call into question the huge amount of money US tech companies say they plan to spend on the technology.

But hype and misconceptions about DeepSeek’s technological advancements also sowed confusion.

Here’s what you need to know.

What is DeepSeek?

The startup was founded in 2023 in Hangzhou, China and released its first AI large language model later that year.

DeepSeek began attracting more attention in the AI industry last month when it released a new AI model that it boasted was on par with similar models from US companies such as ChatGPT maker OpenAI, and was more cost effective.

The chatbot became more widely accessible when it appeared on Apple and Google app stores this year.

But it was a follow-up research paper published last week — on the same day as President Donald Trump’s inauguration — that set in motion the panic that followed.

That paper was about another DeepSeek AI model called R1 that showed advanced “reasoning” skills — such as the ability to rethink its approach to a maths problem — and was significantly cheaper than a similar model sold by OpenAI called o1.

“What their economics look like, I have no idea,” Bernstein analyst Stacy Rasgon, said.

“But I think the price points freaked people out.”

DeepSeek claims to be more cost-effective in its use of expensive Nvidia chips to train the system on huge troves of data. (Reuters:Dado Ruvic/Illustration/File Photo)

Who owns DeepSeek?

DeepSeek’s CEO is tech mogul Liang Wenfeng.

Liang previously co-founded one of China’s top hedge funds, High-Flyer, which focuses on AI-driven quantitative trading.

He was also the only AI leader to attend a meeting of entrepreneurs with China’s Premier Li Qiang this month, the The Australian Financial Review reports.

The entrepreneurs were reportedly told to “concentrate efforts to break through key core technologies”.

What does this have to do with Trump?

Behind the drama over DeepSeek’s technical capabilities is a debate within the US over how best to compete with China on AI.

“Deepseek R1 is AI’s Sputnik moment,” said venture capitalist Marc Andreessen in a Sunday post on social platform X.

The post is in reference to the 1957 satellite launch that set off a Cold War space exploration race between the Soviet Union and the US.

Mr Andreessen, who has advised Mr Trump on tech policy, has warned that over-regulation of the AI industry by the US government will hinder American companies and enable China to get ahead.

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But the attention on DeepSeek also threatens to undermine a key strategy of US foreign policy in recent years to restrict the sale of American-designed AI semiconductors to China.

Some experts on US-China relations do not think that is an accident.

“The technology innovation is real, but the timing of the release is political in nature,” said Gregory Allen, director of the Wadhwani AI Center at the Center for Strategic and International Studies.

Mr Allen compared DeepSeek’s announcement last week to US-sanctioned Chinese company Huawei’s release of a new phone during diplomatic discussions over Biden administration export controls in 2023.

“Trying to show that the export controls are futile or counterproductive is a really important goal of Chinese foreign policy right now,” Mr Allen said.

Mr Trump signed an order on his first day in office last week that said his administration would “identify and eliminate loopholes in existing export controls”, signalling that he was likely to continue and harden Mr Biden’s approach.

Will DeepSeek hurt Nvidia?

Nvidia, the biggest casualty so far of DeepSeek’s dramatic interruption of the AI market, has welcomed the Chinese AI firm’s sudden appearance.

Nvidia dropped 17 per cent, or $US590 billion ($940 billion) on Monday night after DeepSeek released its chatbot.

Despite this, Nvidia described DeepSeek’s innovation as an “excellent AI advancement”.

In a statement, Nvidia said more of its chips would be needed in the future to meet demand for DeepSeek’s services.

“DeepSeek’s work illustrates how new models can be created using that technique, leveraging widely available models and compute that is fully export control compliant,” Nvidia said.

Reuters reports that one of DeepSeek’s research papers showed that it had used about 2,000 of Nvidia’s H800 chips, which were designed to comply with US export controls released in 2022.

Has DeepSeek been hit by a cyber attack?

While its popularity continues, the company’s status page said it had been hit by a cyber attack.

“Due to large-scale malicious attacks on DeepSeek’s services, we are temporarily limiting registrations to ensure continued service,” it wrote in a statement.

“Existing users can log in as usual. Thanks for your understanding and support.”

DeepSeek also experienced sporadic outages as its popularity caused downloads to surge.

AP/ABC