DeepSeek’s New AI Model Sparks Shock, Awe, and Questions From US Competitors

A powerful new open-source artificial intelligence model created by Chinese startup DeepSeek has shaken Silicon Valley over the past few days. Packed with cutting-edge capabilities and developed on a seemingly tiny budget, DeepSeek’s R1 is prompting talk of an impending upheaval in the tech industry.

To some people, DeepSeek’s rise signals that the US has lost its edge in AI. But a number of experts, including executives at companies that build and customize some of the world’s most powerful frontier AI models, say it’s a sign of a different kind of technological transition underway.

Instead of trying to create larger and larger models that require increasingly exorbitant amounts of computing resources, AI companies are now focusing more on developing advanced capabilities, like reasoning. That has created an opening for smaller, innovative startups such as DeepSeek that haven’t received billions of dollars in outside investment. “It’s a paradigm shift towards reasoning, and that will be much more democratized,” says Ali Ghodsi, CEO of Databricks, a company that specializes in building and hosting custom AI models.

“It’s been clear for some time now that innovating and creating greater efficiencies—rather than just throwing unlimited compute at the problem—will spur the next round of technology breakthroughs,” says Nick Frosst, a cofounder of Cohere, a startup that builds frontier AI models. “This is a clarifying moment when people are realizing what’s long been obvious.”

Thousands of developers and AI enthusiasts flocked to DeepSeek’s website and its official app in recent days to try out the company’s latest model and shared examples of its sophisticated capabilities on social media. Shares in US tech firms, including the chipmaker Nvidia, fell in response on Monday as investors began to question the vast sums being poured into AI development.

DeepSeek’s technology was developed by a relatively small research lab in China that sprang out of one of the country’s best-performing quantitative hedge funds. A research paper posted online last December claims that its earlier DeepSeek-V3 large language model cost only $5.6 million to build, a fraction of the amount its competitors needed for similar projects. OpenAI has previously said that some of its models cost upwards of $100 million each. The latest models from OpenAI as well as Google, Anthropic, and Meta likely cost considerably more.

The performance and efficiency of DeepSeek’s models has already prompted talk of cost cutting at some big tech firms. One engineer at Meta, who asked not to be named because they were not authorized to speak publicly, says the tech giant will most likely try to examine DeepSeek’s techniques to find ways to reduce its own expenditure on AI. “We believe open source models are driving a significant shift in the industry, and that’s going to bring the benefits of AI to everyone faster,” a spokesperson for Meta said in a statement. “We want the US to continue to be the leader in open source AI, not China, which is why Meta is developing open source AI with our Llama models which have been downloaded over 800 million times.”