If you’ve been following the AI space lately, you’ve probably heard the name DeepSeek pop up—often alongside phrases like “AI’s Sputnik moment” and “$600 billion market shock.” But what exactly is DeepSeek, and why has it rattled Silicon Valley’s biggest players? Let’s break it down.

What is DeepSeek?

DeepSeek is a Chinese artificial intelligence company that develops open-source large language models (LLMs). It was founded in May 2023 and is based in Hangzhou, Zhejiang. Unlike many AI startups that rely on venture capital, DeepSeek is entirely backed by a single hedge fund—High-Flyer. That’s a key detail, as it has allowed the company to operate independently without the pressure of short-term profit demands.

At its core, DeepSeek has positioned itself as a cost-effective alternative to AI models like OpenAI’s GPT-4, Google’s Gemini, and Meta’s Llama. While the big American players have spent billions developing their latest-generation AI models, DeepSeek reportedly built a competitive model—DeepSeek R1—on a shoestring budget of just $5.6 million, or just under ₹50 crore. That’s an eye-wateringly low number compared to the usual AI arms race spending, which often runs into the hundreds of millions (or even trillions, if you believe Sam Altman’s long-term AI vision).

Who is Behind DeepSeek?

The man at the helm of DeepSeek is Liang Wenfeng, a Chinese hedge fund manager and co-founder of High-Flyer. Liang started as a trader during the 2007–2008 financial crisis while studying at Zhejiang University. By 2019, he had built High-Flyer into a hedge fund that leaned heavily on AI-powered trading algorithms. By 2021, High-Flyer had gone all-in on AI for its financial strategies, and just two years later, DeepSeek was born as a separate company dedicated to artificial intelligence research.

While many AI CEOs have backgrounds in machine learning or tech startups, Liang comes from a finance-heavy background. That likely gives him a different perspective on AI—more pragmatic and numbers-driven rather than focusing solely on innovation for its own sake. It’s also why DeepSeek isn’t rushing into commercialisation the way OpenAI and Google are. Instead, it’s playing a longer game, focusing purely on research and optimisation.

Why is DeepSeek Making Waves?

DeepSeek’s models aren’t just competitive—they’re disruptive. The company’s AI assistant launched on 10 January 2025, and within weeks, it had overtaken ChatGPT as the most-downloaded free app on the iOS App Store in the UK. That in itself is huge, but what really caught people’s attention was the impact on global markets.

On 27 January, DeepSeek’s success sent shockwaves through Wall Street, leading to a record $600+ billion drop in Nvidia’s market value. Other AI-adjacent companies—like Microsoft, Google’s parent company Alphabet, and Dutch chipmaker ASML—also saw their stock prices tumble. Why? Because DeepSeek proved that cutting-edge AI could be built at a fraction of the usual cost, making investors question whether the massive spending by U.S. tech firms was truly necessary.

The real kicker is that DeepSeek managed to achieve all of this while operating under U.S. chip sanctions. For years, the U.S. has restricted China’s access to advanced AI hardware, especially Nvidia’s high-performance GPUs. Many experts assumed that this would slow down China’s AI development. Instead, DeepSeek found workarounds, training its models on lower-capacity H800 chips rather than the top-of-the-line H100s used by OpenAI and others. This efficiency-first approach has put the entire AI industry on notice.

How Are Major AI Players Reacting?

DeepSeek’s rise has prompted a mix of admiration, concern, and outright panic from the biggest names in tech. Marc Andreessen, Silicon Valley venture capitalist and co-founder of Andreessen Horowitz, called DeepSeek “AI’s Sputnik moment,” referencing the 1957 Soviet satellite launch that spurred the U.S. into a space race. In his view, DeepSeek’s breakthrough is a wake-up call for American AI companies to rethink their strategies—something alluded to by US President Donald Trump as well.

Sam Altman, CEO of OpenAI, reacted with cautious admiration on X, stating: "DeepSeek's R1 is an impressive model, particularly around what they're able to deliver for the price. We will obviously deliver much better models and also it's legit invigorating to have a new competitor! We will pull up some releases." He followed up by reaffirming OpenAI’s commitment to pushing forward, adding: "But mostly we are excited to continue to execute on our research roadmap and believe more compute is more important now than ever before to succeed at our mission. The world is going to want to use a LOT of AI, and really be quite amazed by the next-gen models coming." Nearby, Elon Musk, always one to stir the pot, tweeted that “AI competition is heating up fast” and that U.S. firms needed to be “more aggressive” in maintaining their lead. Given Musk’s own AI ventures (xAI and Grok), he likely sees DeepSeek as both a competitor and a challenge.

Jensen Huang, CEO of Nvidia, was probably the most directly impacted. His company’s stock plummeted by 17% in a single day due to concerns that AI companies might not need to buy as many expensive Nvidia chips as previously thought. While Nvidia still dominates the AI hardware market, DeepSeek’s efficiency model has sparked fears that the industry could shift towards cheaper, more resourceful AI training methods. In a public statement to Investing.com, Nvidia responded: “DeepSeek is an excellent AI advancement and a perfect example of Test Time Scaling. DeepSeek’s work illustrates how new models can be created using that technique, leveraging widely-available models and compute that is fully export control compliant.”

What’s Next for DeepSeek?

Despite its rapid rise, DeepSeek is still very much a research-focused company. Unlike OpenAI, which has aggressively pursued enterprise deals and integrations with Microsoft, DeepSeek has no major commercialisation plans—at least for now. That could likely change, but for the time being, it seems content to shake up the AI world simply by proving what’s possible.

One looming question is how the Chinese government will handle DeepSeek’s newfound global influence. While China has strict regulations around AI, DeepSeek’s open-source model allows its technology to spread beyond its borders. That could lead to tensions with regulators or even push the company towards more controlled commercialisation strategies; only time will tell.