Following last weekend’s introduction of the latest large language model (LLM) from DeepSeek, ChatGPT’s new artificial intelligence (AI) rival has topped the Apple App Store for iPhone downloads.
The DeepSeek R1 LLM is open source and uses reasoning combined with what the company calls “cold start data”, which means that rather than trawling the internet and social media sites to amass vast quantities of machine learning data, it relies instead on reinforced learning to improve accuracy.
On its GitHub page, the developers of DeepSeek describe R1 as a large-scale reinforcement learning on the base model. “We directly apply reinforcement learning to the base model without relying on supervised fine-tuning as a preliminary step,” it says. “This approach allows the model to explore chain-of-thought for solving complex problems.”
An estimated 2.1 million searches for DeepSeek were recorded over the weekend, with at least 1.6 million of these on Sunday 26 January alone. This is 12.3% of ChatGPT’s 13 million searches in the same timeframe.
Along with taking a different approach to ChatGPT, the interest in DeepSeek is also being driven by competitive pricing and the fact that the code is open source.
While OpenAI, the maker of ChatGPT, charges $2.50 per million input tokens for its GPT-4o model, DeepSeek is priced at $0.14 per million input tokens in situations where the AI engine is able to draw on previously cached information. Non-cached inputs are priced at $0.55 per million tokens.
The extent of interest in the AI from the Chinese firm resulted in turmoil in the valuation of tech stocks in the US. Reuters reported that Nvidia saw its share price drop 17%, which effectively wiped $593bn off its market valuation.
Wake-up call
In a speech on Monday, US president Donald Trump described DeepSeek as a wake-up call for the US tech sector.
Among the numerous subjects Trump spoke about in his speech to Republican party members of Congress were the executive orders revoking the AI regulations introduced under former president Joe Biden. “We don’t want to have any future president ever sabotage our economy with out-of-control regulations,” he said. “Last week I signed an order revoking Joe Biden’s destructive artificial intelligence regulations so that AI companies can once again focus on being the best, not just being the most woke.”
He then referenced DeepSeek as he continued talking about why deregulation is important for AI in the US. “Today and over the last couple of days I’ve been reading about China and [one Chinese company] in particular coming up with a faster method of AI and a much less expensive method. Hopefully the release of DeepSeek AI from a Chinese company should be a wake-up call for our industries that we need to be laser-focused on competing to win.”
DeepSeek’s developers have been able to combine cutting-edge algorithms to slash the energy demands of AI training and deployment. In his speech, Trump described what DeepSeek had achieved as “good”, since companies aiming to develop AI applications that use DeepSeek do not have to spend as much money compared with rival LLMs. “I view that as a positive, as an asset,” he added.
Commenting on what the rise of DeepSeek has meant to financial markets, Charu Chanana, chief investment strategist at investment platform Saxo, pointed out that DeepSeek took only two months to develop and less than $6m to build, using reduced-capability chips from Nvidia called H800s. This is significant given that the Biden administration banned the export of high-end Nvidia graphics processors (GPUs) to China in 2023.
“US tech companies are trading at premium valuations, with major AI players like Nvidia, Microsoft and Alphabet commanding forward P/E [price to earnings] multiples far above historical averages,” she said. “With these stocks priced for perfection, even minor disruptions, such as DeepSeek proving advanced AI can be built without top-tier chips, could weigh heavily on share prices. For Nvidia, in particular, its role as a key supplier of AI chips makes it vulnerable if demand for its high-end products wanes.”
The idea of lower-cost and more energy-efficient AI coming from DeepSeek appears to have an immediate impact both on the US tech giants and the energy sector, which has been banking on the growth of AI-fuelled power consumption.
“DeepSeek’s breakthrough signals a shift toward efficiency in AI, which will redefine both energy and AI markets,” said Nigel Green, the CEO of global financial advisory giant DeVere Group. “The opportunities for investors willing to act now are enormous.
“This challenges the assumption that AI’s growth is tied to ever-increasing energy consumption. While the market is reacting to short-term uncertainty, efficiency-driven AI models will expand adoption into new markets and industries. This means more widespread use, deeper integration and, ultimately, sustained demand for energy solutions.”
Arguably, it’s the fact that DeepMind has been able to achieve results using inferior hardware and offer its LLM at a highly competitive price that is set to change every organisation’s approach to AI: it doesn’t necessarily require throwing vast amounts of costly GPUs at the hardware and having to recoup these costs by charging end users a premium.
“By developing cutting-edge generative AI models without relying on the latest, most expensive hardware, DeepSeek has demonstrated that agility and strategy can outpace raw computational power,” said Kjell Carlsson, head of AI strategy at Domino Data Lab. “Their achievements also highlight the vulnerability of incumbents in the generative AI space – proving that open-source innovation continues to be a powerful equaliser, enabling challengers to match and even surpass established players years into the revolution.”
What all this means is that DeepSeek signifies Chinese competition to Silicon Valley’s existing AI models. Michael Guan, CEO of Final Round AI, said the pricing model is profitable, unlike models that many other AI organisations offer. “Its code is also open source,” he added. “This is very unconventional, as companies tend to keep the code behind their latest models a closely guarded secret.”
