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Here’s what you should know

January 28, 2025
in News
Reading Time: 7 mins read
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On Monday, Chinese artificial intelligence startup DeepSeek took over rival OpenAI’s coveted spot as the most-downloaded free app in the U.S. on Apple‘s App Store, dethroning ChatGPT for DeepSeek’s AI Assistant. Global tech stocks sold off and were on pace to wipe out billions in market cap.

Later on Monday, DeepSeek said it would temporarily limit user registrations “due to large-scale malicious attacks” on its services, though existing users will be able to log in as usual.

Tech leaders, analysts, investors and developers say that the hype — and ensuing fear of falling behind in the ever-changing AI hype cycle — may be warranted. Especially in the era of the generative AI arms race, where tech giants and startups alike are racing to ensure they don’t fall behind in a market predicted to top $1 trillion in revenue within a decade.

What is DeepSeek?

DeepSeek was founded in 2023 by Liang Wenfeng, co-founder of High-Flyer, a quantitative hedge fund focused on AI. The AI startup reportedly grew out of the hedge fund’s AI research unit in April 2023 to focus on large language models and reaching artificial general intelligence, or AGI — a branch of AI that equals or surpasses human intellect on a wide range of tasks, which OpenAI and its rivals say they’re fast pursuing. DeepSeek is still wholly owned by and funded by High-Flyer, according to analysts at Jefferies.

The buzz around DeepSeek began picking up steam earlier this month, when the startup released R1, its reasoning model that rivals OpenAI’s o1. It’s open-source, meaning that any AI developer can use it, and has rocketed to the top of app stores and industry leaderboards, with users praising its performance and reasoning capabilities.

Like other Chinese chatbots, it has its limitations when asked about certain topics: When asked about some of Chinese leader Xi Jinping’s policies, for instance, DeepSeek reportedly steers the user away from similar lines of questioning.

Another key part of the discussion: DeepSeek’s R1 was built despite the U.S. curbing chip exports to China three times in three years. Estimates differ on exactly how much DeepSeek’s R1 costs, or how many GPUs went into it. Jefferies analysts estimated that a recent version had a “training cost of only US$5.6m (assuming US$2/H800 hour rental cost). That is less than 10% of the cost of Meta‘s Llama.” But regardless of the specific numbers, reports agree that the model was developed at a fraction of the cost of rival models by OpenAI, Anthropic, Google and others.

As a result, the AI sector is awash with questions, including whether the industry’s increasing number of astronomical funding rounds and billion-dollar valuations is necessary — and whether a bubble is about to burst.

Read more CNBC reporting on AI

Shares of Nvidia fell nearly 17% on Monday by market close, with chipmaker ASML down nearly 6%. The Nasdaq dropped more than 3%. Four tech giants — Meta, Microsoft, Apple and ASML are all set to report earnings this week.

Analysts at Raymond James detailed some of the questions plaguing the AI industry this month, writing, “What are the investment implications? What does it say about open sourced vs. proprietary models? Is throwing money at GPUs really a panacea? Are U.S. export restrictions working? What are the broader implications of [DeepSeek]? Well, they could be dire, or a non-event, but rest assured, the industry is abuzz with disbelief and speculation.”

Bernstein analysts wrote in a note Monday that “according to the many (occasionally hysterical) hot takes we saw [over the weekend,] the implications range anywhere from ‘That’s really interesting’ to ‘This is the death-knell of the AI infrastructure complex as we know it.'”

How U.S. companies are responding

Some American tech CEOs are clambering to respond before clients switch to potentially cheaper offerings from DeepSeek, with Meta reportedly starting four DeepSeek-related “war rooms” within its generative AI department.

Microsoft CEO Satya Nadella wrote on X that the DeepSeek phenomenon was just an example of the Jevons paradox, writing, “As AI gets more efficient and accessible, we will see its use skyrocket, turning it into a commodity we just can’t get enough of.” OpenAI CEO Sam Altman tweeted a quote he attributed to Napoleon, writing, “A revolution can be neither made nor stopped. The only thing that can be done is for one of several of its children to give it a direction by dint of victories.”

Yann LeCun, Meta’s chief AI scientist, wrote on LinkedIn that DeepSeek’s success is indicative of changing tides in the AI sector to favor open-source technology.

LeCun wrote that DeepSeek has profited from some of Meta’s own technology, i.e., its Llama models, and that the startup “came up with new ideas and built them on top of other people’s work. Because their work is published and open source, everyone can profit from it. That is the power of open research and open source.”

Alexandr Wang, CEO of Scale AI, told CNBC last week that DeepSeek’s last AI model was “earth-shattering” and that its R1 release is even more powerful.

“What we’ve found is that DeepSeek … is the top performing, or roughly on par with the best American models,” Wang said, adding that the AI race between the U.S. and China is an “AI war.” Wang’s company provides training data to key AI players including OpenAI, Google and Meta.

Earlier this week, President Donald Trump announced a joint venture with OpenAI, Oracle and SoftBank to invest billions of dollars in U.S. AI infrastructure. The project, Stargate, was unveiled at the White House by Trump, SoftBank CEO Masayoshi Son, Oracle co-founder Larry Ellison and OpenAI CEO Sam Altman. Key initial technology partners will include Microsoft, Nvidia and Oracle, as well as semiconductor company Arm. They said they would invest $100 billion to start and up to $500 billion over the next four years.

Here’s what you should know

AI evolving

News of DeepSeek’s prowess also comes amid the growing hype around AI agents — models that go beyond chatbots to complete multistep complex tasks for a user — which tech giants and startups alike are chasing. Meta, Google, Amazon, Microsoft, OpenAI and Anthropic have all expressed their goal of building agentic AI.

Anthropic, the Amazon-backed AI startup founded by ex-OpenAI research executives, ramped up its technology development throughout the past year, and in October, the startup said that its AI agents were able to use computers like humans to complete complex tasks. Anthropic’s Computer Use capability allows its technology to interpret what’s on a computer screen, select buttons, enter text, navigate websites and execute tasks through any software and real-time internet browsing, the startup said.

The tool can “use computers in basically the same way that we do,” Jared Kaplan, Anthropic’s chief science officer, told CNBC in an interview at the time. He said it can do tasks with “tens or even hundreds of steps.”

OpenAI released a similar tool last week, introducing a feature called Operator that will automate tasks such as planning vacations, filling out forms, making restaurant reservations and ordering groceries.

The Microsoft-backed startup describes it as “an agent that can go to the web to perform tasks for you,” and added that it is trained to interact with “the buttons, menus, and text fields that people use daily” on the web. It can also ask follow-up questions to further personalize the tasks it completes, such as login information for other websites. Users can take control of the screen at any time.

— CNBC’s Michael Bloom contributed reporting.

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