🔹DeepSeek, a Chinese artificial intelligence (AI) startup, has recently emerged as a major player in the AI industry, drawing significant attention from global investors and industry leaders. Founded in 2023, the company has rapidly developed advanced AI models that rival those of U.S. tech giants.

🔹In December, DeepSeek unveiled a free large language model, reportedly built in just two months at a cost of under $6 million using low-power Nvidia H800 chips. The DeepSeek app has become one of the most popular apps on the App Store, and the surge in Bloomberg searches for "DeepSeek" underscores growing global interest and investor focus on the company.

Performance and Cost Advantage

🔹DeepSeek's AI models, such as DeepSeek-R1, have demonstrated superior performance compared to prominent U.S. models like OpenAI’s GPT-4 and Meta’s LLaMA 3.1, excelling in tasks like complex problem-solving, mathematics, and coding.

🔹The API costs for DeepSeek-R1 are remarkably low—$0.55 per million input tokens and $2.19 per million output tokens, compared to OpenAI's costs of $15 and $60, respectively. This dramatic price difference raises fundamental questions about the long-term viability of traditional, capital-intensive AI models.

Open-Source Strategy

🔹Unlike many U.S. companies that maintain exclusive control over their AI models, DeepSeek has embraced an open-source approach, sharing its codes and training methods freely. This strategy could accelerate innovation and foster widespread adoption globally, potentially diminishing the competitive edge of U.S. companies like OpenAI and Google.

🔹Yann LeCun, Chief AI Scientist at Meta, stated:
"The success of DeepSeek highlights the potential for open-source models to outperform proprietary ones."

Impact on U.S. Tech Giants

🔹Major U.S. tech firms, including Nvidia, Microsoft, and Alphabet, are trading at valuations significantly above historical averages. Even minor disruptions, such as DeepSeek’s demonstration of building advanced AI models without expensive chips, have negatively impacted their stock prices.

🔹Nvidia, in particular, faces a substantial risk. As the leading supplier of high-end AI chips, a reduction in demand for its premium products could severely impact its business.

U.S. Export Restrictions and Their Limitations

🔹DeepSeek's success also raises a critical question: How has the company progressed despite U.S. export restrictions? The Biden administration’s semiconductor export controls were designed to limit China’s access to powerful chips like Nvidia’s H100. However, DeepSeek has either bypassed these restrictions or found alternative solutions, potentially exposing the inefficacy of these policies.

Future Policy Shifts and Market Implications

🔹If U.S. export restrictions fail to hinder China’s advancements, American policymakers may consider new strategies, potentially creating volatility in semiconductor and AI markets.

Investment Outlook

🔹While AI remains a key growth driver, investors are advised to also explore sectors like renewable energy, semiconductors, and healthcare, which present significant innovation-driven opportunities for high returns.

DeepSeek’s rise could mark a critical inflection point for the global AI landscape, challenging the dominance of U.S. companies and prompting strategic reassessments in both the public and private sectors.