DeepSeek: China outpaces US in AI arms race
The emergence of a Chinese rival to ChatGPT is being labelled “AI’s Sputnik moment”.
Wall Street is in turmoil today, with US tech giants bracing for significant losses, as the sudden emergence of a Chinese chatbot threatens to challenge America’s reputation as the undisputed leader in AI technology.
DeepSeek, a Chinese competitor to OpenAI’s ChatGPT, has rocketed to the top of Apple's App Store charts across the UK, US and China, sending tech stocks tumbling.
Investors dumped around $1 trillion of technology stocks in premarket trading this morning and, once US markets opened, the Nasdaq slipped 3.5 per cent upon the ring of the bell. Nvidia, an American tech company that has been one of the biggest winners from the AI revolution, has shed $500bn in market value.
The DeepSeek hype comes after the start-up released its largest language AI model last week, which achieved a comparable performance to US rivals Open AI and Meta, despite being developed at a fraction of the cost.
Based in the eastern Chinese city of Hangzhou, DeepSeek was founded in 2023 by Liang Wenfeng, who reportedly began buying Nvidia chips in 2021 to develop AI models as a hobby, bankrolled by his hedge fund.
The company’s sudden rise is prompting a major rethink of the global AI landscape, indicating that the US strategy to contain China’s tech sector is failing - or indeed actively backfiring.
Under former President Joe Biden, the US imposed stringent restrictions on China’s access to American-made chips, banning entirely the sale of Nvidia’s most advanced chips to the country.
Yet DeepSeek has developed bespoke algorithms to build its model even without Nvidia’s H100 chips. It instead relied on Nvidia’s reduced-capability H800 chips, and claims to have spent less than $6m (£4.8m).
The company’s success at building an advanced model even without access to the most cutting-edge US technology indicates that Washington’s efforts to stymie Beijing’s tech sector aren’t working. Instead, US restrictions have led Chinese AI firms to adapt by sharing their work and finding innovative ways to create AI models that require significantly less computing power to operate. That DeepSeek has relied on lower-cost chips, and fewer of them, than its western counterparts to develop its models has now given it a competitive edge: it is far cheaper to produce.
The assumption that America can sustain its unassailable AI lead just by spending billions of dollars on chips has been thrown into doubt.
Venture capital investor Marc Andreessen has drawn a comparison with the moment that the Soviet Union stunned the US by putting the first satellite into orbit, calling the rise of this new Chinese chatbot “AI’s Sputnik moment”.
Significant flaws in DeepSeek’s model may still emerge. Even so, the fact that parallels are being drawn with such a pivotal moment in the US-USSR space race shows that we shouldn’t underplay the significance of this development for the global tech sector.
Caitlin Allen
Deputy Editor
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