DeepSeek Shock: Chinese AI Disrupts the Global AI Market
What is DeepSeek?
DeepSeek, founded in 2023 by Liang Wenfeng, is a Chinese AI company developing large language models (LLMs) with remarkable cost efficiency and an open-source policy, rivaling American AI leaders.
Chinese AI Revolution: The Birth of 'DeepSeek Shock'
On January 27, 2025 ('DeepSeek Shock Day'), DeepSeek's 'R1' model topped free download charts in the US and China, transforming the global AI landscape.
Shocking Cost Efficiency
DeepSeek's V3 model cost $6 million to develop, significantly less than ChatGPT-4o's reported $100 million development cost.
OpenAI vs. DeepSeek Comparison
DeepSeek achieved comparable performance to OpenAI using fewer and older chips (2,000 H800 vs. 10,000 H100).
DeepSeek's Innovation Strategy
- Hardware Optimization: Optimized older chips.
- Model Distillation: Used open-source AI as "teachers" for efficient model creation.
Model distillation transfers knowledge from large "teacher" models to smaller, efficient "student" models.
The Challenge of Open-Source Strategy
DeepSeek's open-source approach contrasts with OpenAI's closed model strategy, potentially reshaping AI development.
Investor Marc Andreessen called this the "AI Sputnik Shock," creating a crisis in the US AI industry.
Market Response: Economic Ripples of the 'DeepSeek Shock'
American AI company stocks, especially NVIDIA (-18.7%, $589B market value), sharply declined after 'DeepSeek Shock Day'.
The NASDAQ technology composite index fell ~8.5%, and the semiconductor sector dropped ~14.2%, the largest weekly decline since 2022.
Big Tech's Response
US Big Tech companies held emergency meetings and are re-evaluating their AI development, focusing on existing hardware efficiency.
Analysts are calling this the 'DeepSeek Deflation,' expecting AI service prices to fall due to lower development costs.
Founder Liang Wenfeng
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| Liang Wenfeng |
Liang Wenfeng, born in 1985, a math prodigy and founder of a $14 billion asset management firm, founded DeepSeek in 2023, leveraging pre-secured GPUs.
America's Response: The Stargate Project
In response, the US announced the 'Stargate Project' on January 21, 2025, a $500 billion initiative led by Altman, Son, OpenAI, Microsoft, NVIDIA, Oracle, and ARM.
Future Outlook
A race for AGI is underway. DeepSeek emphasizes efficiency, while the US relies on vast investment. The impact of AGI remains to be seen, but the 'DeepSeek Shock' has fundamentally altered the AI industry.