Chinese AI Model DeepSeek Dominates Apple Store Downloads, Shakes Tech Industry
A Chinese-developed AI model, DeepSeek, has rapidly risen to the top of Apple Store downloads, leaving investors stunned and causing ripples in the tech industry.
Released on January 20, DeepSeek initially caught the eye of AI enthusiasts before grabbing global attention and disrupting markets. US President Donald Trump called it a “wake-up call” for American companies, urging them to intensify their focus on innovation and competition.
What sets DeepSeek apart is its groundbreaking claim: the model was developed at a fraction of the cost of leading AI systems like OpenAI by relying on fewer advanced chips. This innovation sent shockwaves through the industry, with chipmaker Nvidia losing nearly $600 billion in market value on Monday, marking the largest single-day loss in US history.
DeepSeek’s rise also poses significant questions about US efforts to curb China’s tech dominance, particularly through bans on exporting advanced chips. Despite these restrictions, China has doubled down on AI development, with President Xi Jinping prioritizing AI as a national focus. Startups like DeepSeek are at the forefront of China's shift from traditional manufacturing to cutting-edge sectors like chips, electric vehicles, and AI.
The rise of DeepSeek has not only highlighted China’s growing AI prowess but also underscored the global race for tech supremacy.
What is Artificial Intelligence (AI)?
Artificial Intelligence (AI) enables machines to mimic human-like behavior by learning and solving problems. It works by analyzing massive amounts of data, identifying patterns, and using that knowledge to perform tasks.
AI can simulate human conversations or predict behaviors, such as shopping habits, making it a powerful tool in various fields. Recently, it has gained attention as the technology behind generative AI chatbots like ChatGPT and DeepSeek. These programs are trained on vast amounts of data, including text and images, to generate new content.
While incredibly useful, these tools can sometimes produce inaccuracies or reflect biases present in their training data. Millions of people rely on AI tools like ChatGPT for daily tasks such as drafting emails, summarizing information, answering questions, coding, and studying.
What is DeepSeek?
DeepSeek is a free AI-powered chatbot similar to ChatGPT, designed for a wide range of tasks. While its effectiveness compared to competitors is still being evaluated, DeepSeek boasts an impressive AI model known as R1, featuring 670 billion parameters. This makes it the largest open-source language model to date, as highlighted by Anil Ananthaswamy, author of Why Machines Learn: The Elegant Math Behind Modern AI.
R1 is a reasoning model, meaning it generates responses step-by-step, mimicking human problem-solving processes. This incremental approach reduces memory usage and lowers the cost of performing tasks. Reports suggest R1 matches the performance of OpenAI's O1 model, particularly in areas like mathematics, coding, and reasoning.
However, like other Chinese AI models such as Baidu's Ernie and ByteDance's Doubao, DeepSeek avoids politically sensitive topics. For example, when asked about the Tiananmen Square massacre, it responded, "I am sorry, I cannot answer that question. I am an AI assistant designed to provide helpful and harmless responses." This reflects the challenges posed by Chinese government censorship, which could hinder the global adoption of such AI tools.
Despite this, DeepSeek’s creators claim the model was built at a fraction of the cost of similar AI systems. The project reportedly cost $6 million (£4.8 million), compared to the over $100 million referenced by OpenAI CEO Sam Altman for ChatGPT-4. This was achieved by pairing a collection of advanced Nvidia A100 chips—reportedly around 50,000, acquired before U.S. export restrictions—with more affordable and less sophisticated hardware.
DeepSeek demonstrates the potential for powerful, cost-efficient AI, although its exact development process remains under scrutiny.
Who is Behind DeepSeek?
DeepSeek, founded in December 2023 by Liang Wenfeng, introduced its first AI large language model the following year, quickly gaining international attention.
Liang Wenfeng, an alumnus of Zhejiang University with degrees in electronic information engineering and computer science, has largely maintained a low profile. However, his presence at a recent meeting hosted by China's Premier Li Qiang highlights DeepSeek's rising prominence in the AI industry.
Unlike many Silicon Valley entrepreneurs, Liang brings a unique perspective with his background in finance. As CEO of High-Flyer, a hedge fund leveraging AI for quantitative trading, he led the company to become China's first quant hedge fund to raise over 100 billion yuan ($13m) in 2019. In a speech that year, Liang questioned, "If the US can develop its quantitative trading sector, why not China?"
In a rare interview last year, Liang expressed his vision for China's AI sector, stating, "China cannot remain a follower forever." He emphasized the gap between originality and imitation, arguing that true innovation is necessary for China to lead in the global AI race. He added that DeepSeek's success surprised Silicon Valley because it demonstrated that a Chinese company could be an innovator, not just a follower.
Despite DeepSeek's accomplishments, concerns about its security have been raised. Australia's science minister, Ed Husic, commented, "There are a lot of questions about quality, consumer preferences, data, and privacy management. These issues need to be carefully evaluated."
How Are US Companies Affected?
DeepSeek's achievements challenge the notion that large budgets and premium chips are the only path to AI advancement. This has raised questions about the future of high-performance chips.
"DeepSeek has demonstrated that cutting-edge AI models can be developed with limited computing resources," says Wei Sun, principal AI analyst at Counterpoint Research.
Meanwhile, OpenAI, with a valuation of $157 billion, is under pressure to justify its massive expenditures and sustain its innovative edge amid growing skepticism about its returns.
DeepSeek’s potential cost efficiencies disrupted financial markets on January 27, causing a 3% drop in the Nasdaq index. The sell-off particularly impacted chip makers and data centers worldwide.
Nvidia bore the brunt of the market turmoil, with its stock plummeting 17% in a single day. Once the world's most valuable company by market capitalization, Nvidia fell to third place behind Apple and Microsoft. Its valuation dropped from $3.5 trillion to $2.9 trillion, according to Forbes.
China Celebrates DeepSeek's Impact
DeepSeek's success marks a significant milestone for China as it strives to develop technology independent of the West.
While the Communist Party has yet to issue a formal statement, Chinese state media highlighted the disruption caused by DeepSeek, claiming it has left Silicon Valley and Wall Street giants "losing sleep" and "upending" the U.S. stock market.
"DeepSeek's achievements are being hailed as a symbol of China's growing technological strength and self-reliance," says Marina Zhang, an associate professor at the University of Technology Sydney. "The company's success validates China's Innovation 2.0 initiative, showcasing a new era of technological leadership led by a younger generation of entrepreneurs."
However, Zhang cautioned that this celebration could potentially foster "tech isolationism."
