What is DeepSeek? The new Chinese AI chatbot that has sparked a $1trillion panic in the tech market

28 January 2025, 10:09

A new AI chatbot from China has sent the US stock market tumbling as its apparent performance on a small budget has shaken up the tech landscape.

Called DeepSeek, the app operates in a similar fashion to OpenAI's ChatGPT and Google's Gemini, but its developers say they have achieved these results for a fraction of the cost.

This has shaken Silicon Valley, which is spending billions on developing AI, and now has the industry looking more closely at DeepSeek and its technology.

Here is a closer look at DeepSeek and its impact.

- What is DeepSeek?

In simple terms, DeepSeek is an AI chatbot app that can answer question and queries much like ChatGPT, Google's Gemini and others.

Being from China, the app does not answer certain politically sensitive questions, but its developers say its general performance is on a par with its high-profile US rivals.

Hype around the app has seen it leap to the top of app store download charts in the UK, US and elsewhere.

Read More: Tech shares plunge as Donald Trump says new Chinese AI firm DeepSeek is "wake up call"

Read More: Has China won the AI battle?

- What is the firm's backstory?

An AI start-up, DeepSeek was founded in 2023 in Hangzhou, China, and released its first AI model later that year.

Chief executive Liang Wenfeng previously co-founded a large hedge fund in China, which is said to have amassed a stockpile of Nvidia high-performance processor chips that are used to run AI systems.

Sales of these chips to China have since been restricted, but DeepSeek says it recent AI models have been built using lower-performing Nvidia chips not banned in China - a revelation which has part-fuelled the upending of the stock market, promoting the idea that the most expensive hardware might not be needed for cutting edge AI development.

Last month, the company first released an AI model it said was on par with the performance of high-profile US firms, including OpenAI's ChatGPT.

- Why has this spooked the tech market so much?

Being a new rival to ChatGPT is not enough in itself to upend the US stock market, but the apparent cost for its development has been.

According to reports, DeepSeek is powered by an open source model called R1 which its developers claim was trained for around six million US dollars (£4.8 million) - although this claim has been disputed by others in the AI sector - and how exactly the developers did this still remains unclear.

However, anything close to that figure is still substantially less than the billions of dollars being spent by US firms - OpenAI is said to have spent five billion US dollars (£4 billion) last year alone.

This apparent cost-effective approach, and the use of widely available technology to produce - it claims - near industry-leading results for a chatbot, is what has turned the established AI order upside down.

As a result, Silicon Valley has been left to ponder if cutting edge AI can be obtained without necessarily using the latest, and most expensive, tech to build it.

- What does DeepSeek's emergence mean for the AI sector?

The arrival of DeepSeek has shown the US may not be the dominant market leader in AI many thought it to be, and that cutting edge AI models can be built and trained for less than first thought.

Some commentators have said this may lead to a democratisation in the AI research market, as innovation may no longer only be accessible to those with the deepest pockets.

As a result, it could mean more innovation in the sector comes from a broader spectrum of places, rather than just the big names in California.

But experts have also said it could have an impact on the world's approach to China, and in particular the United States, with US President Donald Trump already calling it a "wake-up call" for American AI giants.

Nigel Green, chief executive of asset management firm deVere Group, said: "This is a wake-up call for markets. The assumption that tariffs could contain China's technological ambitions is being dismantled in real time.

"DeepSeek's breakthrough is proof that innovation will always find a way forward, regardless of economic barriers.

"By restricting China's access to high-end semiconductors, Washington sought to slow its progress in AI.

"Rather than being crippled by US sanctions, Beijing has cultivated AI models that require significantly less computing power, diminishing its reliance on American technology and eroding US leverage over global supply chains."