What is DeepSeek and how is it impacting competitors?

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DeepSeek, a Chinese AI startup founded in 2023 by entrepreneur Liang Wenfeng, has rapidly gained attention with its innovative and cost-effective AI models. The company's latest product, DeepSeek-R1, has been compared favorably to leading AI systems from OpenAI and Meta, achieving similar or better performance benchmarks at a fraction of the cost.

This development has raised concerns among global tech firms, particularly in the United States, about increased competition in the AI sector.

What Is DeepSeek?

DeepSeek specializes in developing advanced AI language models that focus on efficient performance and affordability. Its flagship model, R1, excels in complex reasoning tasks and ranks among the top AI models globally on platforms such as Chatbot Arena. Unlike many U.S. counterparts, DeepSeek's models are open source, allowing free access, modification, and distribution.

The company claims to have developed its models with significantly lower costs—reporting $5.6 million for training its latest model compared to the hundreds of millions typically required.

DeepSeek's mobile app has also surged in popularity, becoming the most downloaded app in Apple's App Store across multiple countries, including the United States, U.K., and China.

Impact on competitors and global market

DeepSeek has emerged as a strong competitor to OpenAI’s ChatGPT by emphasizing openness and cost-effectiveness.

Users can download and run the model locally, safeguarding their data from sharing or privacy breaches. The model also allows users to bypass potential censorship or biases in its outputs. Performance-wise, DeepSeek is considered superior to ChatGPT in technical tasks such as logical reasoning, coding, and mathematical calculations.

However, ChatGPT continues to lead in conversational abilities, creative outputs, and handling news or current events. For general queries, both models provide comparable results.

DeepSeek's rise has also unsettled global markets, leading to a selloff in tech stocks. Major companies, including Nvidia, Broadcom, and Microsoft, experienced sharp declines in their stock prices on Monday.

Nvidia, the hardest hit, saw a nearly 17% drop, erasing $589 billion from its market value—the largest single-day market cap loss in history. This downturn caused Nvidia to lose its status as the world’s most valuable company, with Apple reclaiming the top spot.

Other chipmakers, including Broadcom and Taiwan Semiconductor Manufacturing Company, also suffered significant losses of 17% and 13%, respectively. Microsoft and Alphabet experienced declines of 3.7% and 4%, while Oracle dropped nearly 14%.

Analysts believe DeepSeek's emergence has raised questions about the sustainability of current AI investment levels and whether U.S. companies can maintain their technological edge.

Some experts, like David Bahnsen of The Bahnsen Group, suggest that U.S. restrictions on AI chip exports to China may have driven Chinese firms to develop competitive alternatives, reducing their reliance on American technology.

Market mutlook and future developments

DeepSeek’s advancements come amid growing competition between China and the U.S. in the AI sector. While questions remain about the accuracy of DeepSeek’s claims regarding its development costs and resources, its models have proven disruptive enough to shift market dynamics and intensify competition.

The situation has highlighted the increasing influence of Chinese firms in the global AI race and the challenges faced by established tech companies. Market analysts are closely monitoring whether U.S. firms will adjust their strategies in response to this emerging competition.