A surprisingly efficient and powerful Chinese AI model has taken the technology industry by storm. It’s called DeepSeek R1, and it’s rattling nerves on Wall Street.
The new AI model
was developed by DeepSeek, a startup that was born just a year ago and has
somehow managed a breakthrough that famed tech investor Marc Andreessen has
called “AI’s Sputnik moment”: R1 can nearly match
the capabilities of its far 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 had spent just $5.6 million powering its base AI model, compared with the
hundreds of millions, if not billions of dollars US companies spend on their AI
technologies. That’s even more shocking when considering that the United States
has worked for years to restrict the supply of high-power AI chips to
China, citing national security concerns. That means DeepSeek was
supposedly able to achieve its low-cost model on relatively under-powered AI
chips.
What is DeepSeek?
The company,
founded in late 2023 by Chinese hedge fund manager Liang Wenfeng, is one of
scores of startups that have popped up in recent years seeking big investment to ride the
massive AI wave that has taken the tech industry to new heights.
Liang has become
the Sam Altman of China — an evangelist for AI technology and investment in new
research. His hedge fund, High-Flyer, focuses on AI development.
Like other AI
startups, including Anthropic and Perplexity, DeepSeek released various
competitive AI models over the past year that have captured some industry
attention. Its V3 model raised some awareness about the company, although its
content restrictions around sensitive topics about the Chinese government and
its leadership sparked doubts about its viability as an industry competitor,
the Wall Street Journal reported.
But R1, which came out of nowhere when
it was revealed late last year, launched last week and gained significant
attention this week when the company revealed to the Journal its shockingly low
cost of operation. And it is open-source, which means other companies can test
and build upon the model to improve it.
The DeepSeek app
has surged on the app store charts, surpassing ChatGPT Monday, and it has been
downloaded nearly 2 million times.
Why is DeepSeek such a big deal?
AI is a
power-hungry and cost-intensive technology — so much so that America’s most
powerful tech leaders are buying up nuclear power companies to
provide the necessary electricity for their AI models.
Meta last week
said it would spend upward of $65 billion this year on AI development. Sam
Altman, CEO of OpenAI, last year said the AI industry would need trillions of dollars in investment to
support the development of high-in-demand chips needed to power the
electricity-hungry data centers that run the sector’s complex models.
So the notion
that similar capabilities as America’s most powerful AI models can be achieved
for such a small fraction of the cost — and on less capable chips — represents
a sea change 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 up new capabilities across
multiple industries that will pave the way for new research and developments.
Andreessen, a
Trump supporter and co-founder of Silicon Valley venture capital firm
Andreessen Horowitz, called DeepSeek “one of the most amazing and impressive
breakthroughs I’ve ever seen,” in a post on X.
If that
potentially world-changing power can be achieved at a significantly reduced
cost, it opens up new possibilities — and threats — to the planet.
What does this mean for America?
The United States
thought it could sanction its way to dominance in a key technology it believes
will help bolster its national security. Just a week before leaving office,
former President Joe Biden doubled down on export restrictions on AI computer
chips to prevent rivals like China from accessing the advanced technology.
But DeepSeek has
called into question that notion, and threatened the aura of invincibility
surrounding America’s technology industry. America may have bought itself time
with restrictions on chip exports, but its AI lead just shrank dramatically
despite those actions.
DeepSeek may show
that turning off access to a key technology doesn’t necessarily mean the United
States will win. That’s an important message to President Donald Trump as he
pursues his isolationist “America First” policy.
Wall Street was
alarmed by the development. US stocks were set for a steep selloff
Monday morning. Nvidia (NVDA), the leading supplier of AI chips,
whose stock more than doubled in each of the past two years, fell 12% in
premarket trading. Meta (META) and Alphabet (GOOGL), Google’s parent company, were also
down sharply, as were Marvell, Broadcom, Palantir, Oracle and many other tech
giants.
Are we really sure this is a big deal?
The industry is
taking the company at its word that the cost was so low. No one is really
disputing it, but the market freak-out hinges on the truthfulness of a single
and relatively unknown company. The company notably didn’t say how much it cost
to train its model, leaving out potentially expensive research and development
costs. (Still, it probably didn’t spend billions of dollars.)
It’s also far too
early to count out American tech innovation and leadership. One achievement,
albeit a gobsmacking one, may not be enough to counter years of progress in
American AI leadership. And a massive customer shift to a Chinese startup is
unlikely.
“The DeepSeek
model rollout is leading investors to question the lead that US companies have
and how much is being spent and whether that spending will lead to profits (or
overspending),” said Keith Lerner, analyst at Truist. “Ultimately, our view, is
the required spend for data and such in AI will be significant, and US
companies remain leaders.”
Although the
cost-saving achievement may be significant, the R1 model is a ChatGPT
competitor — a consumer-focused large-language model. It hasn’t yet proven it
can handle some of the massively ambitious AI capabilities for industries that
— for now — still require tremendous infrastructure investments.
“Thanks to its
rich talent and capital base, the US remains the most promising ‘home turf’
from which we expect to see the emergence of the first self-improving AI,” said
Giuseppe Sette, president of AI market research firm Reflexivity.
Source:CNN