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China AI firm DeepSeek shocks US tech; Nvidia dives US$589b, biggest one-day loss in US history

Published Tue, Jan 28, 2025 · 073 AM

CHINESE firm DeepSeek’s artificial intelligence chatbot has soared to the top of the Apple Store’s download charts, stunning industry insiders and analysts with its ability to match its US competitors.

The programme has shaken up the tech industry and hit US titans including Nvidia, the AI chip juggernaut that saw nearly US$600 billion of its market value erased, the most ever for one day on Wall Street.

Here’s what you need to know about DeepSeek:
Top performer

DeepSeek was developed by a startup based in the eastern Chinese city of Hangzhou, known for its high density of tech firms.

Available as an app or on desktop, DeepSeek can do many of the things that its Western competitors can do – write song lyrics, help work on a personal development plan or even write a recipe for dinner based on what’s in the fridge.
It can communicate in multiple languages, though it told AFP that it was strongest in English and Chinese.

It is subject to many of the limitations seen in other Chinese-made chatbots like Baidu’s Ernie Bot. Asked about President Xi Jinping or Beijing’s policies in the western region of Xinjiang, it implored the user to “talk about something else”.

But from writing complex code to solving difficult sums, industry insiders have been astonished by just how well DeepSeek’s abilities match the competition.
“What we’ve found is that DeepSeek is the top performing, or roughly on par with the best American models,” Alexandr Wang, the CEO of Scale AI, told CNBC.

That’s all the more surprising given what is known about how it was made.

In a paper detailing its development, the firm said the model was trained using only a fraction of the chips used by its Western competitors.

‘Sputnik moment’?

Analysts had long thought that the US’ critical advantage over China when it comes to producing high-powered chips – and its ability to prevent the Asian power from accessing the technology – would give it the edge in the AI race.

But DeepSeek researchers said they spent only US$5.6 million developing the latest iteration of their model - peanuts when compared with the billions US tech giants have poured into AI.

Shares in major tech firms in the US and Japan have tumbled as the industry takes stock of the challenge from DeepSeek.

Nvidia’s shares tumbled 17 per cent on Monday (Jan 27), erasing US$589 billion from the company’s market capitalisation, the biggest in US stock-market history.

And Japanese firm SoftBank, a key investor in US President Donald Trump’s announcement of a new US$500 billion venture to build infrastructure for artificial intelligence in the United States, lost more than eight per cent.

Venture capitalist Marc Andreessen, a close advisor to Trump, described it as “AI’s Sputnik moment” – a reference to the Soviet satellite launch that sparked the Cold War space race.

“DeepSeek R1 is one of the most amazing and impressive breakthroughs I’ve ever seen,” he wrote on X.

Open source model

Like its Western competitors Chat-GPT, Meta’s Llama and Claude, DeepSeek uses a large-language model (LLM) – massive quantities of texts to train its everyday language use.

But unlike Silicon Valley rivals, which have developed proprietary LLMs, DeepSeek is open source, meaning anyone can access the app’s code, see how it works and modify it themselves.

“We are living in a timeline where a non-US company is keeping the original mission of OpenAI alive - truly open, frontier research that empowers all,” Jim Fan, a senior research manager at Nvidia, wrote on X.

DeepSeek said it “tops the leaderboard among open-source models” - and “rivals the most advanced closed-source models globally”.

Scale AI’s Wang said that “DeepSeek is a wake up call for America”.

‘Great things’

Beijing’s leadership has vowed to be the world leader in AI technology by 2030 and is projected to spend tens of billions in support for the industry over the next few years.

The success of DeepSeek suggests that Chinese firms may have begun leaping the hurdles placed in their way.

Last week, DeepSeek’s founder, hedge fund manager Liang Wenfeng, sat alongside other entrepreneurs at a symposium with Chinese Premier Li Qiang – highlighting the firm’s rapid rise.

Its viral success also sent it to the top of the trending topics on China’s X-like Weibo website on Monday, with related hashtags pulling in tens of millions of views.

“This really is an example of spending a little money to do great things,” one user wrote. AFP