(NewsNation) — An artificial intelligence startup founded in China last year is causing United States stocks to fall and getting attention from those in the technology industry.
DeepSeek was founded in May 2023 by Liang Wenfeng, who co-founded a hedge fund, High-Flyer, in 2015. The Wall Street Journal wrote that DeepSeek grew out of High-Flyer’s AI research unit. High-Flyer was described by the WSJ as a “pioneer” in China in applying deep learning to computerized trading.
While DeepSeek is a chatbot similar to OpenAI’s ChatGPT or Meta AI, Fortune reports that it distinguishes itself by giving a reason for its responses to a prompt.
Training a DeepSeek model costs less than the competition. The Wall Street Journal reports that training DeepSeek costs $5.6 million, compared to other models that can cost $100 million to $1 billion. In addition, the web interface for DeepSeek is free, while ChatGPT access to advanced language models costs $240 to $2,400 a year and is metered.
When DeepSeek’s specialized model R1 was released on Jan. 20, it surged to the top of the Apple app store’s Top Free Apps chart — knocking OpenAI to second place.
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Venture Capitalist Marc Marc Andreessen said on X that Deepseek R1 is “one of the most amazing and impressive breakthroughs I’ve ever seen.”
Why are so many people talking about DeepSeek?
Not only does DeepSeek require less money than other AI models, it also requires fewer resources. A technical report stated that DeepSeek used 2,048 Nvidia chips to train the V3 model. Other models of a similar size require tens of thousands of chips. A few AI specialists in the United States, though, have questioned whether High-Flyer and DeepSeek are accessing computing power beyond what they’ve publicly announced, according to The Wall Street Journal.
“DeepSeek built the model using reduced capability chips from Nvidia which is impressive and thus has caused major agita for US tech stocks with massive pressure on Nasdaq this morning,” Wedbush Securities analysts wrote in a note to clients Monday, NewsNation partner The Hill wrote.
Still, this all comes a couple of years after the Biden administration issued restrictions on exports of certain semiconductor chips and equipment to China. This week, the United States said it would further restrict exports of chips used for AI and other advanced technology to limit China’s access. New rules include a cap on the number of AI chips that can be exported to most countries.
“It remains to be seen if DeepSeek found a way to work around these chip restrictions rules and what chips they ultimately used as there will be many skeptics around this issue given the information is coming from China,” according to Dan Ives, an analyst with Wedbush.
On Monday, DeepSeek said it had to temporarily limit user registrations “due to large-scale malicious attacks” on its services, CNBC reported. Existing users will be able to log in as usual, the news outlet said.
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How has DeepSeek affected US stocks?
Chipmaker Nvidia’s stock went down 17% Monday morning. Other Big Tech companies didn’t fare much better.
The Nasdaq composite was down 3.2%, and the S&P 500 was down 1.7% in afternoon trading, which the AP says means it’s heading for its worst day in more than a month.
Despite Meta CEO Mark Zuckerberg saying last week that he plans to invest between $60 billion and $65 billion this year into AI development, Meta’s stock price fell by about 3.5% Monday.
After its shares tumbled, Nvidia put out a statement to assuage investor concerns.
“DeepSeek’s work illustrates how new models can be created using that technique, leveraging widely-available models and compute that is fully export control compliant,” Nvidia said in its statement.
The Associated Press, Reuters and NewsNation partner The Hill contributed to this report.
