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Chinese AI startup DeepSeek has made global headlines after topping app download charts and shaking up the tech industry, leading to a drop in US tech stocks.

In January, the company launched its latest model, DeepSeek R1, claiming it rivals OpenAI’s ChatGPT in capability while being significantly cheaper to produce.

Its rapid rise unsettled investors, wiping billions off chip giant Nvidia’s market value and challenging the assumption that American firms would dominate the AI sector. Wikipedia

Former President Donald Trump called it a “wake-up call” for US companies.

What is artificial intelligence?

To understand why DeepSeek has caused such a stir, it’s important to first look at AI and its ability to make computers behave like humans.

AI enables machines to learn and solve problems by analyzing vast amounts of data and identifying patterns. This leads to software that can engage in human-like conversations or predict consumer behavior.

In recent years, AI has gained prominence through chatbots like ChatGPT and DeepSeek—both forms of generative AI. These programs are trained on extensive datasets, including online text and images, allowing them to generate new content.

However, these tools are not without flaws. They can produce misinformation and may reflect biases present in their training data.

Millions of people now rely on AI tools like ChatGPT for everyday tasks, such as drafting emails, summarizing text, answering questions, and even assisting with coding and studying.

What is DeepSeek?

DeepSeek is a free AI-powered chatbot that closely resembles ChatGPT in appearance, functionality, and usage.

VIDEO CREDIT:-CODEWITHHARRY

Like its competitors, it is used for various tasks, though opinions differ on how well it performs. Reports suggest that DeepSeek R1 matches OpenAI’s Q* model—released late last year—in areas such as mathematics and coding.

Similar to Q*, R1 is a “reasoning” model, generating responses step by step to mimic human problem-solving and thought processes.

One of DeepSeek’s standout features is its cost-effectiveness. Its researchers claim it was trained for just $6 million (£4.8 million), a fraction of the “over $100 million” that OpenAI CEO Sam Altman mentioned when discussing GPT-4.

The company has also managed to minimize the impact of US restrictions on high-end chips reaching China. Reports suggest that DeepSeek’s founder stockpiled Nvidia A100 chips—banned from export to China since September 2022—and may have combined them with cheaper, less advanced chips to optimize efficiency.

Additionally, DeepSeek requires less memory than its competitors, significantly reducing operational costs. This combination of high performance and affordability helped DeepSeek’s AI assistant become the most downloaded free app on Apple’s App Store upon its US release.

However, on the same day, the company reported “large-scale malicious attacks,” forcing it to temporarily limit registrations. Its website also suffered outages.

Like other Chinese AI models, such as Baidu’s Ernie and ByteDance’s Doubao, DeepSeek is designed to avoid politically sensitive topics. China’s stringent government censorship is evident in the chatbot’s lack of information when questioned by the BBC about what happened in Tiananmen Square on June 4, 1989.

Who is behind DeepSeek?

DeepSeek was founded in December 2023 by Liang Wenfeng and launched its first AI large language model the following year.

Little is known about Liang, who holds degrees in electronic information engineering and computer science from Zhejiang University. However, he has now stepped into the global spotlight.

His growing influence in the AI industry was highlighted when he recently attended a meeting hosted by China’s Premier Li Qiang.

Unlike many American AI entrepreneurs from Silicon Valley, Liang comes from a finance background. He is the CEO of High-Flyer, a hedge fund that leverages AI for quantitative trading—analyzing financial data to guide investment decisions. In 2019, High-Flyer became China’s first quant hedge fund to surpass 100 billion yuan ($13 million) in fundraising.

That same year, Liang questioned, “If the US can develop its quantitative trading sector, why not China?”

In a rare interview last year, he asserted that China’s AI sector “cannot remain a follower forever” in the race against US tech advancements.

When asked why DeepSeek’s model caught Silicon Valley off guard, Liang responded, “Their surprise comes from seeing a Chinese company enter the field as an innovator, not just a follower—something most Chinese firms are used to being.”

However, DeepSeek’s rise has also drawn international scrutiny.

Australia has banned the chatbot on government devices, citing national security risks. Meanwhile, data protection authorities worldwide have questioned how the company handles personal information, which is stored on China-based servers.

On January 30, Italy blocked DeepSeek’s app and ordered the company to halt processing its citizens’ data over privacy concerns.

DeepSeek Emerges as China’s AI Contender Under Founder Liang Wenfeng

Founded in December 2023 by Liang Wenfeng, DeepSeek swiftly entered the global AI arena with its inaugural large language model in 2024, positioning itself as an unexpected challenger to U.S. tech dominance. Liang, an alumnus of Zhejiang University with dual degrees in electronic information engineering and computer science, has recently garnered international attention, notably attending a high-profile meeting hosted by Chinese Premier Li Qiang—a testament to DeepSeek’s rising influence.

From Finance to AI Innovation
Liang’s career spans both technology and finance. As CEO of High-Flyer, a pioneering Chinese quantitative hedge fund, he leveraged AI to analyze financial data for investment strategies. In 2019, High-Flyer became China’s first quant fund to surpass 100 billion yuan (approximately $13.8 billion) in assets, a milestone Liang highlighted while advocating for China’s potential to rival U.S. advancements in quantitative trading.

Ambitions Beyond “Follower” Status
In a rare 2023 interview, Liang emphasized China’s need to transcend its role as a follower in AI: “Their surprise stems from seeing a Chinese company join their game as an innovator, not just a follower,” he remarked, addressing Silicon Valley’s reaction to DeepSeek’s breakthroughs. His vision challenges the perception of Chinese firms as mere imitators in tech innovation.

Global Scrutiny and Regulatory Hurdles
Despite its rapid ascent, DeepSeek faces international skepticism. Australia banned the platform on government devices, citing national security risks, while Italy blocked its app in January 2024 and mandated a halt to processing Italian citizens’ data over privacy concerns. Global regulators have pressed the company to clarify its data-handling practices, particularly as user information is stored on servers within China.

As DeepSeek navigates these challenges, Liang’s dual expertise in AI and finance underscores his ambition to redefine China’s role in the global tech landscape—a journey marked by both ambition and growing pains.

Why did US companies hit Nvidia?

DeepSeek’s success challenges the notion that large budgets and top-tier chips are the only paths to AI advancement, raising uncertainty about the future demand for high-performance chips.

“DeepSeek has proven that cutting-edge AI models can be developed with limited compute resources,” says Wei Sun, principal AI analyst at Counterpoint Research.

Meanwhile, OpenAI—valued at $157 billion—faces growing scrutiny over whether it can maintain its dominance and justify its massive valuation and expenses without delivering substantial returns.

DeepSeek’s lower costs sent shockwaves through financial markets on January 27, causing the tech-heavy Nasdaq to drop more than 3% in a broad sell-off that hit chipmakers and data centers worldwide.

Nvidia’s stock plunged 17% on Monday before beginning to recover on Tuesday.

Previously the world’s most valuable company by market capitalization, Nvidia fell to third place behind Apple and Microsoft after its market value dropped from $3.5 trillion to $2.9 trillion, according to Forbes.

As a privately owned company, DeepSeek is not publicly traded, meaning investors cannot buy its shares on major stock exchanges.

How Has China Reacted to DeepSeek’s Impact?

DeepSeek’s rise is a major victory for the Chinese government, which has been striving to develop technology independent of the West.

While the Communist Party has yet to comment, Chinese state media has been quick to highlight how DeepSeek is causing concern among Silicon Valley and Wall Street giants, describing it as “overturning” the US stock market and keeping American firms “losing sleep.”

“In China, DeepSeek’s success is being celebrated as proof of the country’s growing technological strength and self-reliance,” says Marina Zhang, an associate professor at the University of Technology Sydney.

She describes the company’s achievements as a validation of “China’s Innovation 2.0″—a new era of homegrown technological leadership driven by a younger generation of entrepreneurs.

However, she also warns that this enthusiasm could lead to “tech isolationism,” potentially limiting China’s collaboration with global AI development.

Additional reporting by João da Silva and Liv McMahon.