Tech stocks plunged on Monday after claims of advances by Chinese startup DeepSeek cast doubts on firms’ ability to cash in on the billions they have already invested on AI.
all plunged in early trading, with the tech-heavy Nasdaq also taking a serious tumble.
The fall is tied to DeepSeek’s release last week of its latest large language AI model, which claims to match the performance of such as despite spending far less money and using far fewer Nvidia chips.
The company explained in a detailed paper how it had built the cutting-edge model on a budget which is a tiny fraction of what US AI firms might expect to pay to make the same gains.
The claims have raised doubts among investors , which has seen company valuations soar over the past two years on the back of expectations around the growth potential of AI.
Meanwhile DeepSeek’s AI Assistant app, which was released on January 10, on Monday overtook rival ChatGPT to become the top-rated free application on ‘s App Store.
DeepSeek’s deep impact
DeepSeek’s growing popularity, and its detailed explanation for how it developed its model, has stunned the artificial intelligence community and sent a market already known for volatility into a further tailspin.
Tech stocks tied to artificial intelligence have been prone to dramatic rises and falls over the past year and analysts said there was no doubt the latest turbulence was tied to DeepSeek.
Richard Hunter, head of markets at UK-based Interactive Investor, hoever, cautioned in an interview with news agency Reuters saying that it was “far too early to describe DeepSeek as an existential threat” to US-based AI solutions. “It will almost certainly put the cat among the pigeons as investors scramble to assess the potential damage it could have on a burgeoning industry,” he said.
DeepSeek’s success since launching and its claims about how it developed its latest model, known as R1, are challenging fundamental assumptions about the development of large-scale AI language and reasoning models.
Genuine success but doubts remain
Richard Windsor, a tech analyst and the founder of research company Radio Free Mobile, told DW that there was no doubt that DeepSeek’s model was as advanced as the claims suggest. “It’s real. If they had not released it completely into the open source, then you would have way more doubts on the performance. But they have released it and it can be measured against existing benchmarks.”
When OpenAI released its latest model last December, it did not give technical details about how it had developed it. DeepSeek has however revealed detailed methods behind how it is developing an AI model capable of reasoning and learning itself, without human supervision.
Then there is the fact that DeepSeek has achieved the apparent breakthrough despite . DeepSeek says it developed its model using Nvidia H800 chips and not the most advanced H100 chips, but that claim has been disputed by some in the sector.
WhereRichard Windsor has doubts is around DeepSeek’s claim on what it cost them to develop the model. DeepSeek claimed it used just over 2,000 Nvidia H800 chips and spent just $5.6 million (€5.24 million) to train a model with more than 600 billion parameters. “That’s what all the fuss is about,” said Windsor. “It’s more than 95 % cheaper than OpenAI does it.”
He added that he is “dubious” about the $5.6 million figure as it’s not clear what help the company had from the Chinese government to keep costs low, whether that be on electricity,
He also believes the fact that the data release happened on the same day as Donald Trump’s inauguration as US President suggests a degree of political motivation on the part of the Chinese government.
Liang Wenfeng, the man behind DeepSeek, has already become something of a national hero in China. Last week he was the only AI boss invited to join other entrepreneurs in a high-profile meeting with Chinese Premier Li Qiang.
Seeking a deeper impact?
DeepSeek is a small Chinese artificial intelligence lab which was developed as a research offshoot of a hedge fund known as High-Flyer. High-Flyer was set up by Wenfeng in 2016.
Wenfeng’s interest in AI led to him focusing on research into AI algorithms, eventually establishing an AI research lab called High-Flyer AI and then rebranding it as DeepSeek in 2023.
The company’s stunning impact on Silicon Valley in recent weeks suggests it may be an AI giant in the making. However, Windsor says there is now a lot of uncertainty over how DeepSeek’s breakthrough will impact the wider market.
He says firms will now try to replicate what DeepSeek has done using the methods it has outlined. If they succeed, it could mean it becomes much cheaper to train AI systems. “The question then is if the amount of AI trained suddenly increases massively because it’s now much cheaper to train, or has everyone
It all points to further upheaval for investors in a sector which has become defined by uncertainty.
Edited by: Uwe Hessler
The post Why is China’s DeepSeek sending AI stocks spinning? appeared first on Deutsche Welle.
