A young artificial intelligence startup based in China has rocked Silicon Valley by releasing its new AI model that appears to offer similar performance to the top existing models but at a substantially lower cost.
Businessman and entrepreneur Liang Wenfeng founded DeepSeek in 2023 as an arm of his quantitative hedge fund, High-Flyer. DeepSeek develops open-source AI models, allowing anyone to inspect or manipulate the software. This contrasts with Microsoft-backed OpenAI, the maker of ChatGPT, which does not publish or share the full details of its AI models and code.
Wenfeng and his team produced impressive results despite a relatively small budget of around $6 million, a short timeframe, and reportedly fewer and older chips than their competitors.
Since the release of its R1 model earlier this month, DeepSeek has seen its mobile app surge to the number one spot in the Apple App Store. At 20 to 40 times the cost, OpenAI is an order of magnitude more expensive than DeepSeek. This revelation is particularly notable given that just days before the spotlight turned to R1, the White House announced the massive half-trillion-dollar Stargate Project, a privately-backed initiative to build out domestic AI research in the United States for OpenAI.
Despite the attention, not everyone is sure the story coming out of China is entirely accurate.
Speaking to CNBC, Scale AI CEO Alexandr Wang told the host he estimates DeepSeek has around 50,000 NVIDIA H100s, which he says they cannot discuss since it breaches export controls with the United States. Elon Musk agreed, posting “Obviously” in response to the video clip of Wang on his social media platform, X.
If Musk and Wang are correct, this would mean DeepSeek models may not be nearly as efficient as the company has stated. However, if DeepSeek’s performance is legitimate, it means engineers in China have been able to work around trade restrictions by focusing on making more efficient models rather than relying on more powerful hardware, like the latest chips produced by Nvidia.
News of the purported breakthrough sent shockwaves through Wall Street, with AI-focused tech stocks seeing massive drops when markets opened on Monday.
“The S&P 500 has lost $1 trillion in value because of #DeepSeek fears,” posted Amber Kanwar on X.
“Half of that is coming from one stock: Nvidia is down more than $500 billion in value today.”