The $1Tn Rout: How Deepseek Upends Race For AI Dominance

(MENAFN- Gulf Times) The unstoppable rise of AI is bringing about upheavals in the tech world.
On Monday, US tech Stocks lost nearly $1tn on concerns about artificial intelligence (AI) spending after the emergence of a low-cost Chinese generative AI model that could threaten US dominance in the fast-growing industry.
The chatbot developed by DeepSeek, a startup based in the eastern Chinese city of Hangzhou, has apparently shown the ability to match the capacity of US AI pace-setters for a fraction of the investments made by American companies.
DeepSeek, whose chatbot became the top-rated free application on Apple's US App Store, said it spent only $5.6mn developing its model compared with the billions US tech giants have poured into AI.
Nvidia Corp shares ended Monday 17% lower, notching their worst one-day performance since March 2020. The decline erased $589bn in market value, a record drop.
The S&P 500 Index shed 1.5%, its worst day since January 10, while the tech-heavy Nasdaq 100 declined nearly 3% for its worst day since December 18.
DeepSeek was founded in 2023 by Liang Wenfeng, the chief of AI-driven quant hedge fund High-Flyer. The company develops AI models that are open-source, meaning the developer community at large can inspect and improve the software.
The app distinguishes itself from other chatbots like OpenAI's ChatGPT by articulating its reasoning before delivering a response to a prompt.
The company claims its R1 release offers performance on par with OpenAI's latest and has granted licence for individuals interested in developing chatbots using the technology to build on it.
Though not fully detailed by the company, the cost of training and developing DeepSeek's models appears to be only a fraction of what's required for OpenAI or Meta Platforms' best products.
The much better efficiency of the model puts into question the need for vast expenditures of capital to acquire the latest and most powerful AI accelerators from the likes of Nvidia.
That also amplifies attention on US export curbs of such advanced semiconductors to China - which were intended to prevent a breakthrough of the sort that DeepSeek appears to represent.
DeepSeek says R1 is near or better than rival models in several leading benchmarks such as AIME 2024 for mathematical tasks, MMLU for general knowledge and AlpacaEval 2.0 for question-and-answer performance. It also ranks among the top performers on a UC Berkeley-affiliated leaderboard called Chatbot Arena.
Washington has banned the export of high-end technologies like GPU semiconductors to China, in a bid to stall the country's advances in AI, the key frontier in the US-China contest for tech supremacy.
But DeepSeek's progress suggests Chinese AI engineers have worked their way around the restrictions, focusing on greater efficiency with limited resources.
The DeepSeek mobile app was downloaded 1.6mn times by January 25 and ranked No 1 in iPhone app stores in Australia, Canada, China, Singapore, the US and the UK, according to data from market tracker App Figures.
China's technology giants, from Alibaba Group and Baidu to Tencent, have poured significant money and resources into the race to acquire hardware and customers for their AI ventures.
Because DeepSeek's models are more affordable, it's already played a role in helping drive down costs for AI developers in China.
The AI frenzy got a fillip when OpenAI transformed how the public think about AI with the launch of its hugely successful chatbot, ChatGPT, just a couple of years ago.
But DeepSeek's success may push OpenAI and other US providers to lower their pricing to maintain their established lead.
It also calls into question the vast spending by companies like Meta and Microsoft Corp - each of which has committed to capex of $65bn or more this year, largely on AI infrastructure - if more efficient models can compete with a much smaller outlay.

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