A new player has entered the artificial intelligence arena, and its name is DeepSeek. This Chinese startup is making waves with its AI app, challenging the dominance of U.S. giants like OpenAI's ChatGPT and causing ripples throughout Wall Street. But what exactly is DeepSeek, and why is it causing such a stir, particularly for companies like Nvidia? Let's dive in.
DeepSeek is a privately held Chinese company established in July 2023. Founded by Liang Wenfeng, a graduate of Zhejiang University, the company has quickly gained recognition for its innovative approach to AI development. Liang Wenfeng initially funded it through his hedge fund.
DeepSeek's core technology is an open-source large language model (LLM). This means the underlying code is publicly available, allowing others to build upon and modify it. This contrasts with closed-source models like ChatGPT where the underlying code is proprietary.
A key differentiator for DeepSeek lies in its focus on "inference-time computing." According to Reflexivity, this approach activates only the most relevant parts of their model for each query, resulting in significant savings in computational power and cost.
DeepSeek's emergence has sparked concerns and triggered stock fluctuations, especially for AI-related companies. Here's why:
DeepSeek's AI app was developed at a significantly lower cost ($6 million) compared to the massive investments being made by U.S. tech giants (estimated at $1 trillion by Goldman Sachs over the coming years). This raises questions about the efficiency and potential overvaluation of AI investments in Silicon Valley.
DeepSeek's ability to achieve impressive results with reduced capability chips from Nvidia is causing concern about future demand for Nvidia's high-end, AI-optimized chips. Companies with chip-making capabilities and which heavily rely on their sales may be impacted. Further pressure on other semiconductor stocks, such as ASML and Broadcom, followed.
The new tech may require less energy to run, translating into lower demand from the tech sector. This negatively affected energy-related stocks such as GE Vernova and Vistra.
While both DeepSeek and ChatGPT are powerful AI models, there are crucial distinctions:
DeepSeek's privacy policy has raised concerns due to its data storage practices. User data, including personal information and chat history, is stored on servers located in China. This has prompted comparisons to the concerns surrounding TikTok and its potential national security risks due to Chinese ownership.
It remains to be seen how DeepSeek will impact the long-term AI landscape. While some analysts believe the initial stock selloff was an overreaction, the company's emergence highlights the following:
Whether DeepSeek gains widespread adoption remains to be seen. However, its arrival has undoubtedly sent a wake-up call to the AI industry, forcing companies to re-evaluate their strategies and consider the potential of more efficient and open-source approaches.
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