Less is More: Who’s Afraid of DeepSeek?

In the indubitably human-created words of Ron Burgundy: That escalated quickly.

Yesterday saw a huge selloff in US tech stocks after a previously obscure Chinese AI chatbot app, called DeepSeek, shot to the top of the Apple App Store. Why the fuss? Well, DeepSeek managed to show that it had created a high quality chatbot but with far fewer resources than US artificial intelligence titans like OpenAI — and at a much cheaper price point. So suddenly the US companies looked like bloated, lumbering dinosaurs being out-maneuvered by an agile little Chinese company, their competitive moat a mere puddle. 

But what does DeepSeek’s sudden rise to fame really tell us about the AI market?

A Little Friendly Competition

First off, the US bid to freeze China out of the AI big leagues has experienced a rude awakening. While DeepSeek’s popularity rush gave investors an unpleasant surprise, Dr Keegan McBride, an expert in AI policy at the Oxford Internet Institute, told The Daily Upside that serious AI competition from China was overdue: “There are a lot of people who got caught off guard, but part of the reason for that is because the United States had convinced itself that closed-source models were far ahead of open-source ones, that there are these huge compute barriers, these export controls in place, and they made the mistake of thinking that this was a permanent fix for curtailing Chinese advancements, rather than trying to slow it down.”

That said, there is a degree of hype around DeepSeek and it’s not the end of American AI tech as we know it. The numbers that it gave out, which spooked tech investors, come with some big asterisks:

• DeepSeek said it only spent $5.5 million “training” the model that has performed so well, but that’s stripping out pretty meaningful overhead, like staff salaries. 
• It also trained its model on a stockpile of Nvidia chips, which have since had export controls imposed on them, so arguably the US effort to box out Chinese competition hasn’t really started to bite yet.

On the other other hand, the technological capability demonstrated by DeepSeek is not to be sniffed at. “Is it cool? Yes. Is it important? Yes. Is it sort of like regime-shattering and an everything-is-burning-down moment? No, not at all,” McBride said. He added that although sparing compute power is part of what’s making DeepSeek a star now, it will become an issue if and when the company begins to scale. Addressing the stock rout, McBride said American AI stocks were likely overvalued to begin with. 

Pricing In Price Wars: Joanna Bryson, professor of ethics and technology at the Hertie School in Berlin, told The Daily Upside that DeepSeek’s impact could be to change the narrative around how AI companies compete. While companies previously were vying to capture resources and infrastructure at huge expense, DeepSeek has flipped the script. “A price war is the best thing that could happen to the industry, honestly,” Bryson told The Daily Upside. “It’s a way to cut through and say: ‘No, stop consuming as many resources as possible.’” Her words were echoed in energy stocks, which took a dive on Monday as markets grappled with the idea that tech companies may stop chasing after power supply with the same verve.