What is DeepSeek, the Chinese AI company upending the stock market? #CanadaFinance

“What their economics look like, I have no idea,” Rasgon said. “But I think the price points freaked people out.”

The ‘Sputnik’ backdrop

Behind the drama over DeepSeek’s technical capabilities is a debate within the U.S. over how best to compete with China on AI.

“Deepseek R1 is AI’s Sputnik moment,” said venture capitalist Marc Andreessen in a Sunday post on social platform X, referencing the 1957 satellite launch that set off a Cold War space exploration race between the Soviet Union and the U.S.

Andreessen, who has advised Trump on tech policy, has warned that overregulation of the AI industry by the U.S. government will hinder American companies and enable China to get ahead.

But the attention on DeepSeek also threatens to undermine a key strategy of U.S. foreign policy in recent years to restrict the sale of American-designed AI semiconductors to China. Some experts on U.S.-China relations don’t think that is an accident.

“The technology innovation is real, but the timing of the release is political in nature,” said Gregory Allen, director of the Wadhwani AI Center at the Center for Strategic and International Studies. Allen compared DeepSeek’s announcement last week to U.S.-sanctioned Chinese company Huawei’s release of a new phone during diplomatic discussions over Biden administration export controls in 2023.

“Trying to show that the export controls are futile or counterproductive is a really important goal of Chinese foreign policy right now,” Allen said.

On Monday, Trump said DeepSeek’s breakthrough was “good because you don’t have to spend this much money.”

Speaking Monday to House Republicans in Miami, Trump called the DeepSeek news “positive” if it is accurate because “you won’t be spending as much and you’ll get the same result.” He called the development a “wakeup call for our industries that we need to be laser focused on competing to win.”

Trump signed an order on his first day in office last week that said his administration would “identify and eliminate loopholes in existing export controls,” signaling that he is likely to continue and harden Biden’s approach.

DeepSeek’s progress on AI without the same amount of spending could possibly undermine the potentially $500 billion AI investment by OpenAI, Oracle and SoftBank that Trump touted at the White House.

Nvidia’s stock dropped 17% Monday, but the company in a statement commended DeepSeek’s work as “an excellent AI advancement” that leveraged “widely-available models and compute that is fully export control compliant.”

What makes DeepSeek different?

One thing that distinguishes DeepSeek from competitors such as OpenAI is that its models are “open source” — meaning key components are free for anyone to access and modify, though the company hasn’t disclosed the data it used for training.

But what’s attracted the most admiration about DeepSeek’s R1 model is what Nvidia calls a “perfect example of Test Time Scaling” — or when AI models effectively show their train of thought, and then use that for further training without having to feed them new sources of data.

“It’s just thinking out loud, basically,” said Lennart Heim, a researcher at Rand Corp.

OpenAI’s reasoning models, starting with o1, do the same, and it’s likely that other U.S.-based competitors such as Anthropic and Google have similar capabilities that haven’t been released, Heim said.

But “it’s the first time that we see a Chinese company being that close within a relatively short time period. I think that’s why a lot of people pay attention to it,” Heim said. “I used to believe OpenAI was the leader, the king of the hill, and that nobody could catch up. Turns out this is not completely the case.”

Matt O’brien, The Associated Press