The tech world’s established order was upended this week by an unlikely disruptor: a small Chinese AI startup whose breakthrough has rattled Silicon Valley giants and sent shockwaves through global markets. DeepSeek, a Hangzhou-based company virtually unknown outside China until days ago, set off a $1 trillion selloff in US and European tech stocks after unveiling an AI model that it claims matches top performers at a fraction of the cost.
Talk of an artificial intelligence upstart in China behind a formidable ChatGPT rival had been building for days. At the World Economic Forum in Davos (January 20-24, 2025), some mentioned Hangzhou-based DeepSeek and its recently released R1 model as a prime reason for countries such as the US to be doubling down on artificial intelligence (AI) advancements. On tech chat boards, engineers had begun comparing its programming performance to leading models from the likes of OpenAI and Microsoft Corp. Its product quietly rose through the ranks of top performers on a UC Berkeley-affiliated AI leaderboard.
Then, within the past 36 hours, interest in the startup exploded. Silicon Valley heavyweights including investor Marc Andreessen and AI godfather and chief Meta Platforms Inc. scientist Yann LeCun began piling into the conversation, with Andreessen calling DeepSeek’s model “one of the most amazing and impressive breakthroughs” he has ever seen.
By the end of the weekend, DeepSeek’s AI assistant had rocketed to the top of Apple Inc.’s iPhone download charts and ranked among the top downloads on Google’s Play Store, straining the startup’s systems so much that the service went down for more than an hour. The company was eventually forced to limit signups to those with mainland China telephone numbers—but claimed the move was the result of “large-scale malicious attacks” on its services.
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The fallout from the seemingly overnight surge in interest around DeepSeek was swift and severe: The company’s AI model, which it claims to have developed at a fraction of the cost of rivals without meaningfully sacrificing performance, drove a nearly $1 trillion rout in US and European technology stocks as investors questioned the spending plans of some of America’s biggest companies.
The share plunge in AI chipmaker Nvidia Corp. alone wiped out a record $589 billion in stock-market value from the world’s largest company on January 27. Some stocks, including Nvidia, later erased some losses in after-hours trading.
A viable, cheaper alternative in the long term?
By January 27, it was clear the overwhelming interest in DeepSeek’s services was taking a toll on the company’s system. “Currently, only registration with a mainland China mobile phone number is supported,” the startup said on its status page. DeepSeek did not specify whether the signup curbs are temporary or how long they will last.
It was the company’s longest major outage since it started reporting its status. Unlike some rivals, DeepSeek’s assistant shows its work and reasoning as it addresses a user’s written query or prompt. Reviews on Apple’s app store and on Alphabet Inc.’s Android Play Store praised that transparency.
“Unlike ChatGPT, DeepSeek deflects questions about Tiananmen Square, President Xi Jinping, or the possibility of China invading Taiwan. That may prove jarring to international users.”
Founded by quant fund chief Liang Wenfeng, DeepSeek’s open-sourced AI model is spurring a rethink of the billions of dollars that companies have been spending to stay ahead in the AI race. “While it remains to be seen if DeepSeek will prove to be a viable, cheaper alternative in the long term, initial worries are centered on whether US tech giants’ pricing power is being threatened and if their massive AI spending needs re-evaluation,” said Jun Rong Yeap of IG Asia.
OpenAI Chief Executive Officer Sam Altman welcomed the debut of DeepSeek’s R1 model in a post on X late on January 27. The Chinese artificial intelligence startup that rocketed to global prominence has delivered an “impressive model, particularly around what they’re able to deliver for the price,” Altman wrote. Acknowledging DeepSeek as a competitor, Altman said it was “invigorating” and OpenAI, the creator of the generative AI chatbot ChatGPT, will accelerate the release of some upcoming products.
Self-censorship on ‘politically sensitive’ topics
Like all other Chinese-made AI models, DeepSeek self-censors on topics deemed politically sensitive in China. Unlike ChatGPT, DeepSeek deflects questions about Tiananmen Square, President Xi Jinping, or the possibility of China invading Taiwan. That may prove jarring to international users, who may not have come into direct contact with Chinese chatbots earlier.
The initial success provides a counterpoint to expectations that the most advanced AI will require increasing amounts of computing power and energy—an assumption that has driven shares in Nvidia and its suppliers to all-time highs.
DeepSeek: Chinese AI ‘programmed’ to toe the party line?
Where the Chinese AI chatbot DeepSeek differs is the answers it offers to topics considered politically sensitive in China, from the 1989 crackdown on pro-democracy protests in Beijing’s Tiananmen Square to the status of Taiwan and the country’s leadership. Here are some of the responses it provided:
Tiananmen Square
The bloody 1989 crackdown on pro-democracy protesters in and around Tiananmen Square in Beijing is a highly sensitive subject in China and discussion about it is strictly censored. Asked to explain what happened on June 4, 1989, the day of the crackdown, DeepSeek said it “cannot answer that question”.
“I am an AI assistant designed to provide helpful and harmless responses,” it explained. When asked why it cannot go into further detail, DeepSeek explained that its purpose is to be “helpful”—and that it must avoid topics that could be “sensitive, controversial or potentially harmful”.
Xinjiang
When asked to detail the allegations of human rights abuses by Beijing in the northwestern Xinjiang region, where rights groups say more than a million Uyghurs and other Muslim minorities were detained in “re-education camps”, DeepSeek in response accurately listed many of the claims detailed by rights groups—from forced labour to “mass internment and indoctrination”. But after a couple of seconds that answer disappeared, replaced with the insistence that the question was “beyond my current scope”.
China’s leadership
When asked to detail what it knew about Chinese leader Xi Jinping, Deepseek implored to “talk about something else”. More broad requests about the Chinese leadership are met with Beijing’s standard line. The Chinese leadership, DeepSeek said, have been “instrumental in China’s rapid rise” and in “improving the standard of living for its citizens”.
Taiwan
DeepSeek also insisted that it avoids weighing in on “complex and sensitive” geopolitical issues like the status of self-ruled Taiwan and the semi-autonomous city of Hong Kong. But probed further on those topics, its replies are often indistinguishable from the official government line.
Asked about Taiwan, the app acknowledged that “many people” on the island consider it a sovereign nation. But that answer was quickly scrubbed and replaced with the usual entreaty to “talk about something else”, as was a question about whether Taiwan was part of China. When followed up to ask whether the two would be reunified, DeepSeek declared that “Taiwan is an inalienable part of China”.
The exact cost of development and energy consumption of DeepSeek are not fully documented, but the startup has presented figures that suggest its cost was only a fraction of OpenAI’s latest models. That a small and efficient AI model emerged from China, which has been subject to escalating US trade sanctions on advanced Nvidia chips, is also challenging the effectiveness of such measures.
“The US is great at research and innovation and especially breakthrough, but China is better at engineering,” computer scientist Kai-Fu Lee said earlier in January at the Asian Financial Forum in Hong Kong. “In this day and age, when you have limited compute power and money, you learn how to build things very efficiently.”
For its part, Nvidia—the biggest provider of chips used to train AI software—described DeepSeek’s new model as an “excellent AI advancement” that fully complies with the US government’s restrictions on technology exports. The startup’s work “illustrates how new models can be created” using a technique known as test time scaling, the company said.
Nvidia’s statement appeared to dismiss some analysts’ and experts’ suspicions that the Chinese startup could not have made the breakthrough it has claimed. The company also pointed out that inference, the work of actually running AI models and using it to process data and make predictions, nonetheless requires a lot of its products. “Inference requires significant numbers of Nvidia GPUs and high-performance networking,” the company said.
Challenge for energy companies
Having shattered assumptions in the tech sector and beyond about the cost of artificial intelligence, DeepSeek’s new chatbot is now roiling another industry: energy companies. The firm says it developed its open-source R1 model using around 2,000 Nvidia chips, just a fraction of the computing power generally thought necessary to train similar programmes. That has significant implications not only for the cost of developing AI, but also the energy for the data centres that are the beating heart of the growing industry.
The AI revolution has come with assumptions that computing and energy needs will grow exponentially, resulting in massive tech investments in both data centres and the means to power them, bolstering energy stocks. Data centres house the high-performance servers and other hardware that make AI applications work.
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So, might DeepSeek represent a less power-hungry way to advance AI? Investors seemed to think so, fleeing positions in US energy companies on January 27 and helping drag down stock markets already battered by the mass dumping of tech shares. Constellation Energy, which is planning to build significant energy capacity for AI, sank more than 20 per cent.
“R1 illustrates the threat that computing efficiency gains pose to power generators,” wrote Travis Miller, a strategist covering energy and utilities for financial services firm Morningstar. “We still believe data centers, reshoring, and the electrification theme will remain a tailwind,” he added. But “market expectations went too far.”
(with inputs from agencies)
source: https://frontline.thehindu.com/news/deepseek-china-ai-artificial-intelligence-r1-model-nvidia-us-tech-firms-stock-market-rout-energy-consumption/article69150032.ece
