Explainer
What is
DeepSeek and why did US tech stocks fall?
Why doubts
have been raised about sustainability of US artificial intelligence boom
Robert Booth
UK technology editor
Mon 27 Jan
2025 21.04 CET
https://www.theguardian.com/business/2025/jan/27/what-is-deepseek-and-why-did-us-tech-stocks-fall
Investors
have been fleeing US artificial intelligence stocks amid surprise at a new,
cheaper but still effective alternative Chinese technology.
What is
DeepSeek?
DeepSeek is
a Chinese artificial intelligence (AI) company based in Hangzhou that emerged a
couple of years ago from a university startup. Its stated goal is to make an
artificial general intelligence – a term for a human-level intelligence that no
technology firm has yet achieved. It’s not there yet, but this may be one
reason why the computer scientists at DeepSeek have taken a different approach
to building their AI model, with the result that it appears many times cheaper
to operate than its US rivals.
Another
reason it appears to have taken the low-cost approach could be the fact that
Chinese computer scientists have long had to work around limits to the number
of computer chips that are available to them, as result of US government
restrictions.
Why haven’t
we heard about it before?
The company
has been quietly impressing the AI world for a while with its technical
innovations, including a cost-to-performance ratio several times lower than
that for models made by Meta (Llama) and OpenAI (Chat GPT). It hasn’t been
making as much noise about the potential of its breakthroughs as the Silicon
Valley companies. They have been pumping out product announcements for months
as they become increasingly concerned to finally generate returns on their
multibillion-dollar investments. But expect to see more of DeepSeek’s cheery
blue whale logo as more and more people around the world download it to
experiment.
What is this
R1 model that people have been talking about?
This is the
DeepSeek AI model people are getting most excited about for now as it claims to
have a performance on a par with OpenAI’s o1 model, which was released to Chat
GPT users in December. On Monday it was the most popular free app downloaded on
Apple’s app store in the UK and other parts of the world.
But there
are lots of AI models out there from OpenAI, Google, Meta and others. What’s
the big deal?
This model
uses a different kind of internal architecture that requires less memory use,
thereby considerably reducing the computational costs of every search or
interaction with the chatbot-style system. It has been praised by researchers
for its ability to tackle complex reasoning tasks, particularly in mathematics
and coding and it appears to be producing results comparable with rivals for a
fraction of the computing power. DeepSeek has said it took two months and less
than $6m (£4.8m) to develop the model, although some observers caution this is
likely to be an underestimate. Nevertheless it is vastly less than the billions
that the Silicon Valley tech companies are spending to develop AIs and is less
expensive to operate.
Who is in
charge?
A key
character is Liang Wenfeng, who used to run a Chinese quantitative hedge fund
that now funds DeepSeek. In a rare interview, he said: “For many years, Chinese
companies are used to others doing technological innovation, while we focused
on application monetisation – but this isn’t inevitable. In this wave, our
starting point is not to take advantage of the opportunity to make a quick
profit, but rather to reach the technical frontier and drive the development of
the entire ecosystem … We believe that as the economy develops, China should
gradually become a contributor instead of free-riding.”
Why did US
tech stocks fall?
Hundreds of
billions of dollars were wiped off big technology stocks after the news of the
DeepSeek chatbot’s performance spread widely over the weekend. The timing was
significant as in recent days US tech companies had pledged hundreds of
billions of dollars more for investment in AI – much of which will go into
building the computing infrastructure and energy sources needed, it was widely
thought, to reach the goal of artificial general intelligence. DeepSeek’s
performance seems to question, at least, that narrative.
What is the
worry for Nvidia?
Nvidia is
one of the companies that has gained most from the AI boom. It went from being
a maker of graphics cards for video games to being the dominant maker of chips
to the voraciously hungry AI industry. It has been compared to a modest trader
in pickaxes and buckets in 19th-century California, which happened to be on the
spot when the gold rush happened and so it became a massive supplier to the
world’s richest industry. Tech companies looking sideways at DeepSeek are
likely wondering whether they now need to buy as many of Nvidia’s tools. Its
market value fell by $600bn on Monday.
What is
DeepSeek not doing?
It hasn’t
reached artificial general intelligence, the threshold at which AI starts to
reason and which OpenAI and others in Silicon Valley are pursuing. Sam Altman,
OpenAI’s chief executive, has cautioned that breakthrough is unlikely to be
imminent. But it does seem to be doing what others can at a fraction of the
cost.
Is the rise
of DeepSeek good news?
One
possibility is that advanced AI capabilities might now be achievable without
the massive amount of computational power, microchips, energy and cooling water
previously thought necessary. As with all technological breakthroughs, time
will help tell how consequential it actually is.
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