DUBAI: DeepSeek, a startup based in Hangzhou, China, has shaken the foundations of the global AI industry.
The company, founded in December 2023 by entrepreneur Liang Wenfeng, has released a generative AI model, DeepSeek-R1, that rivals the capabilities of models developed by Silicon Valley heavyweights like OpenAI and Google. However, what sets DeepSeek apart is its low development cost – just $5.6 million – achieved through innovative resource optimisation.
This breakthrough has not only highlighted China's growing capabilities in artificial intelligence but also sparked a series of economic ripples across global markets.
Nvidia’s historic loss
The release of DeepSeek's model on January 10 sent shockwaves through Wall Street. Nvidia, the dominant supplier of GPUs crucial to training AI models, experienced an unprecedented 17 percent drop in its stock value on Monday. The chipmaker’s market capitalisation plummeted by $589 billion, marking the largest single-day market loss in history. This surpasses previous records, including Meta’s $251 billion loss in February 2022 and Nvidia’s earlier $279 billion dip in September 2024.
The fall has dethroned Nvidia from its position as the world’s most valuable company, with its valuation dropping from $3.5 trillion to $2.9 trillion, now trailing Apple and Microsoft.
Why Nvidia fell
While DeepSeek relied on Nvidia’s H800 chips, experts believe its success challenges Nvidia’s business model. For years, Nvidia’s high-end GPUs, costing up to $25,000 each, were indispensable for AI research. However, DeepSeek’s model demonstrated that cutting-edge AI could be developed using less advanced and fewer chips, drastically reducing costs.
DeepSeek’s ability to achieve comparable results with a limited budget has raised doubts about the sustainability of Nvidia’s meteoric growth. As demand for more cost-effective AI solutions rises, US companies may look to replicate DeepSeek’s approach, threatening Nvidia’s long-term profitability.
Who is behind DeepSeek?
Liang Wenfeng, DeepSeek’s enigmatic founder, has quickly become a figure of interest in the tech world. A graduate of Zhejiang University with expertise in electronic information engineering and computer science, Liang also boasts a strong background in finance. He founded High-Flyer, a hedge fund that employs AI for quantitative trading, becoming the first in China to raise over 100 billion yuan in 2019.
Liang’s journey into AI was driven by curiosity and a belief that human intelligence could be mimicked through language models. In a 2023 interview, he expressed his vision of China leading innovation rather than merely imitating Silicon Valley.
Geopolitical implications
DeepSeek’s rise has reignited the tech rivalry between the United States of America and China. The US has imposed strict export controls on advanced chips to curb China’s AI development. Yet DeepSeek’s success suggests that Chinese firms can either bypass these restrictions or innovate with existing resources.
For US policymakers, this development is a wake-up call. Former President Donald Trump described DeepSeek’s success as a reminder for the US to "compete to win" in the AI race. Meanwhile, Chinese President Xi Jinping has made AI a national priority, positioning startups like DeepSeek as central to the country’s shift toward high-tech industries.
Efficiency over power
DeepSeek’s model, trained using roughly 2,000 Nvidia H800 GPUs, achieves efficiency by employing multiple smaller, specialised models working in tandem. This innovation reduces reliance on costly chips while maintaining performance.
Although the company has yet to verify all claims, analysts believe DeepSeek’s approach could disrupt traditional AI development practices. By combining advanced algorithms with cost-effective resources, it has proven that billion-dollar budgets may no longer be necessary for cutting-edge AI.
Cybersecurity concerns
Amid its newfound prominence, DeepSeek faced a cyberattack that disrupted its services. While the company described the incident as malicious, some remain sceptical, questioning whether the attack masked deeper vulnerabilities in its infrastructure.
Nevertheless, the disruptions haven’t slowed its momentum. DeepSeek’s AI assistant is now the top-rated free app on Apple’s US App Store, further cementing its position as a formidable competitor in the AI sector.