What is DeepSeek and Why is it a Big Deal To Tech World? DeepSeek also knocked Nvidia from its position as the world's most valuable company, from USD 3.5 trillion to USD 2.7 trillion

A startup has again created a significant buzz in the global tech space, and no, it is not OpenAI. The sector is tipping its hats to China's DeepSeek, with Jensen Huang, Sam Altman, and US President Donald Trump calling its model 'excellent', 'impressive', and a 'positive development', respectively.

Founded in 2023, DeepSeek has toppled ChatGPT as the App Store's top app. Its recent release of the open-source artificial intelligence (AI) model R1 has sent the industry into a frenzy, including a massive shock to Nvidia's market standing. The chip maker's shares plunged 17 per cent by close, losing USD 589 billion in m-cap on Monday– the largest single-day value wipeout in history. DeepSeek also knocked Nvidia from its position as the world's most valuable company, from USD 3.5 trillion to USD 2.7 trillion.

The cost-effective winner

DeepSeek, a startup from Hangzhou, China, was founded in 2023 and launched its first AI language model that same year. It has made its generative AI algorithms, models, and training details open-source, allowing anyone to freely use, modify, view, and design documents for building purposes.

The CEO, Liang Wenfeng, co-founded the AI-driven quantitative trading hedge fund, High-Flyer. By 2022, High-Flyer had acquired 10,000 Nvidia A100 graphics processor chips, prompting the U.S. to restrict chip sales to China.

Among several aspects in which the Chinese startup is challenging AI giants, affordability is key. While offering impressive results, DeepSeek has achieved remarkable cost efficiency in its development. For comparison, OpenAI has invested over USD 100 million in training their models while DeepSeek has managed to build its model for only USD 6 million within two months.

Building and running an AI model is compute intensive with many key players having large data sets. Via model distillation (let's create a smaller, more efficient model by learning from larger, pre-existing models), DeepSeek can achieve high performance without the typical requirement for extensive computational resources.

Impact on the global market

Apart from a heavy dent in Nvidia's m-cap, Oracle and Google plunged by 13.8 per cent and four per cent, respectively. DeepSeek has also led several experts to predict Trump to prioritize its AI policy.

"The emergence of Chinese AI giants like DeepSeek is a wake-up call for U.S. markets and businesses. This arrival goes beyond a simple matter of technological competition; it is a direct challenge to the dominance of American innovation and the stability of our financial markets," said George Kailas, CEO, Prospero.Ai. "When companies like Nvidia lose billions overnight, it highlights how vulnerable even the most established players are in a rapidly shifting landscape."

DeepSeek announced that its latest models were developed using Nvidia's H800 chips, allowed in China. This demonstrates that cutting-edge AI research doesn't necessarily require the most advanced hardware. Currently, China has around 2,000 AI startups, while the United States hosts approximately 9,500.

"This genuinely democratises AI and gives countries who don't have the existing infrastructure a huge leap forward to experiment and be part of the frontier…However, from a supply/demand perspective the GPU market which Nvidia dominates is still far away from hitting peak demand," said Bruce Keith, CO-Founder & CEO, InvestorAi.

What does it mean for India?

Despite several AI initiatives undertaken by the Indian government, the AI race still has a long way to go. The key AI initiatives by the Indian government include the National Program on Artificial Intelligence, the Applied AI Research Centre in Telangana, the US-India AI Initiative, and the IndiaAI Mission.

Narendra Bhandari, General Partner, Seafund notes that Indian startups should aspire to build relevant models at much lower costs. "The government should focus on a few areas such as funding the capital build out as laid out in the budgets to much higher returns in the new environment, attracting talent (Indian Diaspora) from across the globe to help build out these newer models, and balancing the research funding to include universities and research labs," he said.

As of April 2024, India had around 6,200 AI startups. In 2024, India's AI startups secured USD 560 million in funding, predominantly from early-stage investments. This marks a 1.25x increase compared to 2023.

Bhaskar Majumdar, Managing Partner, Unicorn India Ventures feels that India should see AI as a "solution" rather than software. "The Deepseek moment is a reminder that accepting the status quo is a wrong strategy. All of us will witness significantly power-efficient, high-performance, solution-centric chips in the next few years that will shake the likes of NVIDIA. Anticipation of this disruption will benefit India and its solutions community," he said.

The global AI market is projected to grow from USD 214.6 billion in 2024 to USD 1,339.1 billion in 2030. Meanwhile, the domestic AI market is expected to reach USD 17 billion by 2027.