*UKHotViewsExtra* DeepSeek – is all the fuss warranted?

Chinese AI supplier DeepSeek caused an uproar yesterday across stock and tech markets. Tech stocks, particularly those with AI chip exposure nosedived, with Nvidia down 17% losing c.$600bn in market value. Data centre companies incl. Dell, Oracle and Super Micro Computer, among others, also fell between 8-15%.

So why now, what was all the fuss about? Well, the commotion was caused by the release of a new AI reasoning model (R1) by DeepSeek, that according to various benchmarks (which you have to take with a pinch of salt) promise to deliver capabilities on par, if not in excess of, OpenAI’s latest models at significantly lower cost, sparking concerns that demand for AI compute (i.e. GPU/Chips) would fall significantly.

DeepSeek was founded in 2023 and backed by hedge fund High-Flyer. The AI supplier has been on the periphery for some time, part of a growing ecosystem of Chinese AI companies. The company’s approach mirrors other successful Chinese tech disruptors like Temu and TikTok, who have historically undercut western competitors with ultra-low pricing. Whilst western companies (mainly US based) have dominated the AI landscape so far, these disruptors are creating a new ‘Wild West’ for AI models and solutions, far less regulated and unpredictable. (Credit to Michael Wooldridge for the Wild West analogy – check out his interview with CGI last year)

But this is not another low-cost t-shirt we are talking about, and fears about using Chinese backed tech due to privacy concerns have only risen in recent years. These points were echoed by UK IT supplier Version 1. Nathan Marlor, Head of Data and AI commented, “I think that whilst DeepSeek/Kimi etc. will appeal most to start ups (i.e. slashing their LLM consumption by 27x overnight) and personal users rather than enterprises directly, the risk undoubtably will end up landing with enterprises. Firstly through "pass through AI" - i.e. SaaS providers adding AI features to their enterprise products, backed by models such as DeepSeek to reduce costs. As a result, organisations will need to pay even closer attention to the T&Cs/privacy notices.”

Note: Version 1 have written an interesting blog article ‘DeepSeek and Destroy’ which is well worth a read.

This DeepSeek saga has also raised warning signs that the competitive landscape can change quickly. According to Dr Andrew Rogoyski, Director of Innovation and Partnerships at the Surrey Institute for People-Centred AI, “the emergence of DeepSeek shows how fragile anyone’s lead in GenAI is – as an insider in Google pointed out in 2023, there is no ‘moat’.  The open-source movement in GenAI seems to be roughly 6 months behind the proprietary platforms, yet DeepSeek shows that even the GenAI leaders might not have the lead they thought they had.”

It is clear that this is likely to be a disruptive time for AI suppliers, it will demand a response, but a race to the bottom will not be sustainable. The promise of low-cost AI may also be too alluring for some organisations to pass on, but will it be worth the risk?... Continued in UKHotViewsExtra.

TechMarketView subscribers can carry on reading our analysis in UKHotViewsExtra. See here: DeepSeek – is all the fuss warranted?

Posted by: Simon Baxter at 10:38

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