A wave of panic crashed the stocks of major tech companies on Monday (27), with American investors shaken by fears that advances in artificial intelligence by the Chinese could threaten the money-making power of tech giants in the United States, Europe, and beyond.
The surprisingly efficient and powerful Chinese AI model is called Deepseek R1. It was developed by DeepSeek, a startup that was born just a year ago and somehow managed to nearly match the capabilities of its much more famous rivals, including OpenAI’s GPT-4, Meta’s Llama, and Google’s Gemini – but at a fraction of the cost.
The company said it spent only $5.6 million to train its basic AI model, compared to the hundreds of millions, if not billions, that US companies spend on their AI technologies.
Everything becomes even more shocking when considering that the United States has worked for years to restrict the supply of high-powered AI chips to China, citing national security concerns. This means that DeepSeek has reportedly managed to achieve its low-cost model on relatively underpowered AI chips.
What is DeepSeek?
The company, founded in late 2023 by Chinese hedge fund manager Liang Wenfeng, is one of dozens of startups that have emerged in recent years seeking large investments to ride the massive AI wave that has taken the tech industry to new heights.
Like other AI startups, including Anthropic and Perplexity, DeepSeek launched several competitive AI models last year that captured some industry attention. Its V3 model drew attention to the company, although its content restrictions around sensitive topics regarding the Chinese government raised doubts about its viability as an industry competitor, the Wall Street Journal reported.
But the R1, which emerged from nowhere when it was revealed late last year, was launched last week and gained significant attention this week when the company revealed that its operating cost is surprisingly low. And it is open-source, meaning other companies can test and develop the model to improve it.
The DeepSeek app stormed the app stores, surpassing ChatGPT on Monday, and was downloaded nearly 2 million times.
Why is DeepSeek attracting so much attention?
AI is a power-hungry and expensive technology — so much so that the most powerful tech leaders in the United States are buying nuclear energy companies to provide the electricity needed for their AI models.
Meta said last week that it would spend over $65 billion this year on AI development. Sam Altman, CEO of OpenAI, said last year that the AI industry would need trillions of dollars in investments to support the development of the high-demand chips needed to power the electricity-hungry data centers that run the industry’s complex models.
So, the notion that capabilities similar to those of the most powerful AI models in the United States can be achieved at such a small fraction of the cost — and on less capable chips — represents a radical shift in the industry’s understanding of how much investment is needed in AI. The technology has many skeptics and opponents, but its advocates promise a bright future: AI will advance the global economy into a new era, they argue, making work more efficient and opening new capabilities across various sectors that will pave the way for new research and developments.
What does this mean for the US?
The United States thought it could have dominance in a key technology that it believes will help bolster its national security. Just a week before leaving office, former President Joe Biden doubled down on restrictions on the export of AI computer chips to prevent rivals like China from accessing advanced technology.
The United States may have bought time with restrictions on chip exports, but its leadership in AI is threatened despite these actions.
Wall Street was alarmed by the development. Nvidia (NVDA), the leading supplier of AI chips, whose stock has more than doubled in each of the last two years, fell 12% in Monday morning trading. Meta (META) and Alphabet (GOOGL), the parent company of Google, also fell sharply, as did Marvell, Broadcom, Palantir, Oracle, and many other tech giants.
Meanwhile, Donald Trump continues to pursue his isolationist “America First” policy and deport immigrants.
Source: CNN