Chinese AI lab DeepSeek has taken the world by storm, with its chatbot app rising to the top of the Apple App Store charts and Google Play Store, sparking concerns about the US's lead in the AI race and the demand for AI chips. The sudden surge in popularity has led Wall Street analysts and technologists to question whether the US can maintain its dominance in the field.

But where did DeepSeek come from, and how did it rise to international fame so quickly? The company's origins can be traced back to High-Flyer Capital Management, a Chinese quantitative hedge fund that uses AI to inform its trading decisions. Co-founded by AI enthusiast Liang Wenfeng in 2015, High-Flyer launched DeepSeek as a lab dedicated to researching AI tools in 2023, which later spun off into its own company.

DeepSeek's technical team, comprised of young and talented researchers, has been aggressive in recruiting doctorate AI researchers from top Chinese universities. The company has also hired individuals without computer science backgrounds to help its tech better understand a wide range of subjects. Despite being affected by US export bans on hardware, DeepSeek has managed to train its models using compute-efficient techniques, forcing it to use less powerful Nvidia H800 chips.

The company's strong models, including DeepSeek Coder, DeepSeek LLM, and DeepSeek Chat, were first unveiled in November 2023. However, it wasn't until the release of its next-gen DeepSeek-V2 family of models in the spring of 2024 that the AI industry started to take notice. DeepSeek-V2, a general-purpose text- and image-analyzing system, performed well in various AI benchmarks and was far cheaper to run than comparable models at the time.

DeepSeek-V3, launched in December 2024, further solidified the company's reputation, with internal benchmark testing showing that it outperforms both downloadable, openly available models like Meta's Llama and "closed" models that can only be accessed through an API, like OpenAI's GPT-4o. Additionally, DeepSeek's R1 "reasoning" model, released in January, has been shown to perform as well as OpenAI's o1 model on key benchmarks, with the ability to fact-check itself and avoid pitfalls that normally trip up models.

However, there is a downside to DeepSeek's models, as they are subject to benchmarking by China's internet regulator to ensure that its responses "embody core socialist values." This has led to limitations in the company's chatbot app, which won't answer questions about Tiananmen Square or Taiwan's autonomy.

DeepSeek's business model is unclear, but its pricing strategy has been described as "extremely cost-competitive." The company's models are available under permissive licenses that allow for commercial use, leading to widespread adoption by developers. According to Clem Delangue, the CEO of Hugging Face, developers on the platform have created over 500 "derivative" models of R1 that have racked up 2.5 million downloads combined.

The company's success has been described as "upending AI" and "over-hyped," with some experts disputing the figures supplied by DeepSeek. Nevertheless, its impact has been significant, causing Nvidia's stock price to drop by 18% in January and eliciting a public response from OpenAI CEO Sam Altman. Microsoft has also announced that DeepSeek is available on its Azure AI Foundry service, while CEO Mark Zuckerberg has stated that spending on AI infrastructure will continue to be a "strategic advantage" for Meta.

However, not everyone is embracing DeepSeek, with some companies and governments banning the use of its models. South Korea has banned DeepSeek, and New York state has prohibited its use on government devices. The US government is also growing wary, with reports suggesting that it will likely ban DeepSeek on government devices in the future.

As the AI landscape continues to evolve, the implications of DeepSeek's rise to fame are far-reaching. Will the US be able to maintain its lead in the AI race, or will China's compute-efficient techniques and aggressive recruitment of top talent give it the upper hand? Only time will tell, but one thing is certain – DeepSeek has disrupted the AI industry, and its impact will be felt for years to come.