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(Bloomberg) — DeepSeek, an AI startup just over a year old, stirred awe and consternation in Silicon Valley with its breakthrough artificial intelligence model that offered comparable performance to the world’s best chatbots at seemingly a fraction of the cost. Created in China’s Hangzhou, DeepSeek carries far-reaching implications for the global tech industry and supply chain, offering a counterpoint to the widespread belief that the future of AI will require ever-increasing amounts of power and energy to develop.

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What exactly is DeepSeek?

DeepSeek is a Chinese startup founded in 2023 by Liang Wenfeng, the chief of AI-driven quant hedge fund High-Flyer. The company develops open-source AI models, and its eponymous mobile app surged to the top of the iPhone’s download charts in the US after its release in early January.

The DeepSeek app distinguishes itself from other chatbots like OpenAI’s ChatGPT by articulating its reasoning before delivering a response to a prompt. The company claims its R1 release offers performance on par with OpenAI’s latest and has granted license for individuals interested in developing chatbots on the technology to build on it.

How does DeepSeek R1 compare to OpenAI or Meta AI?

Though not fully detailed by the company, the cost of training and developing DeepSeek’s models appears to be only a fraction of what’s required for OpenAI or Meta Platforms Inc.’s best products. The much better efficiency of the model puts into question the need for vast expenditures of capital to acquire the latest and most powerful AI accelerators from the likes of Nvidia Corp. That also amplifies attention on US export curbs of such advanced semiconductors to China — which were intended to prevent a breakthrough of the sort that DeepSeek seems to represent.

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DeepSeek R1 is near or better than rival models in several leading benchmarks such as AIME 2024 for mathematical tasks, MMLU for general knowledge and AlpacaEval 2.0 for question-and-answer performance. It also ranks among the top performers on a UC Berkeley-affiliated leaderboard called Chatbot Arena.

What’s raising alarm in the US?

Washington has banned the export of high-end technologies like GPU semiconductors to China, in a bid to stall the country’s advances in AI, the pivotal frontier in the US-China contest for tech supremacy. But DeepSeek’s progress suggests Chinese AI engineers have worked their way around the restrictions, focusing on greater efficiency with limited resources. While it remains unclear how much advanced AI-training hardware DeepSeek has had access to, the company’s demonstrated enough to suggest the trade restrictions have not been entirely effective in stymying China’s progress.

When did DeepSeek spark global interest?

The AI developer has been closely watched since the release of its earliest model in 2023. Then in November, it gave the world a glimpse of its DeepSeek R1 reasoning model, designed to mimic human thinking. That model underpins its mobile chatbot app, which together with the web interface in January rocketed to global renown as a much cheaper OpenAI alternative, with investor Marc Andreessen calling it “AI’s Sputnik moment.”

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The DeepSeek mobile app was downloaded 1.6 million times by Jan. 25 and ranked No. 1 in iPhone app stores in Australia, Canada, China, Singapore, the US and the UK, according to data from market tracker App Figures.

Who is DeepSeek’s founder?

Born in Guangdong in 1985, Liang received bachelor’s and masters’ degrees in electronic and information engineering from Zhejiang University. He founded DeepSeek with only 10 million yuan ($1.4 million) in registered capital, according to company database Tianyancha.

The bottleneck for further advances is not more fundraising, Liang said in an interview with Chinese outlet 36kr, but US restrictions on access to the best chips. Most of his top researchers were fresh graduates from top Chinese universities, he said, stressing the need for China to develop its own domestic ecosystem akin to the one built around Nvidia and its AI chips.

“More investment does not necessarily lead to more innovation. Otherwise, large companies would take over all innovation,” Liang said.

Where does DeepSeek stand in China’s AI landscape?

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China’s technology leaders, from Alibaba Group Holding Ltd. and Baidu Inc. to Tencent Holdings Ltd., have poured significant money and resources into the race to acquire hardware and customers for their AI ventures. Alongside Kai-Fu Lee’s 01.AI startup, DeepSeek stands out with its open-source approach — designed to recruit the largest number of users quickly before developing monetization strategies atop that large audience.

Because DeepSeek’s models are more affordable, it’s already played a role in helping drive down costs for AI developers in China, where the bigger players have engaged in a price war that’s seen successive waves of price cuts over the past year and a half.

What are the implications for the global AI marketplace?

DeepSeek’s success may push OpenAI and other US providers to lower their pricing to maintain their established lead. It also calls into question the vast spending by companies like Meta and Microsoft Corp. — each of which has committed to capex of $65 billion or more this year, largely on AI infrastructure — if more efficient models can compete with a much smaller outlay. That roiled Asia stock markets as investors sought Chinese names linked to DeepSeek, such as Iflytek Co., and moved away from chipmaking supply chain names like Advantest Corp. that may be exposed to any shortfall in expected demand for AI semiconductors.

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Already, developers around the world are experimenting with DeepSeek’s software and looking to build tools with it. That could quicken the adoption of advanced AI reasoning models — while also potentially touching off additional concern about the need for guardrails around their use. DeepSeek’s advances may hasten regulation to control how AI is developed.

What are DeepSeek’s shortcomings?

Like all other Chinese AI models, DeepSeek self-censors on topics deemed sensitive in China. It deflects queries about Tiananmen Square or geopolitically fraught questions like the possibility of China invading Taiwan. In tests, the DeepSeek bot is capable of giving detailed responses about political figures like Indian Prime Minister Narendra Modi, but declines to do so about Chinese President Xi Jinping.

DeepSeek’s cloud infrastructure is likely to be tested by its sudden popularity. The company briefly experienced a major outage on Jan. 27 and will have to manage even more traffic as new and returning users pour more queries into its chatbot.

—With assistance from Luz Ding, Zheping Huang, Claire Che and Ville Heiskanen.

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