Chinese AI lab DeepSeek has taken the tech world by storm, with its chatbot app rising to the top of the Apple App Store and Google Play charts. The sudden surge in popularity has raised eyebrows among Wall Street analysts and technologists, who are now questioning whether the US can maintain its lead in the AI race and whether the demand for AI chips will sustain.

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. AI enthusiast Liang Wenfeng co-founded High-Flyer in 2015, and in 2023, the company spun off its AI research lab, also called DeepSeek, into a separate entity.

DeepSeek's technical team is notable for its youth and aggressive recruitment of doctorate AI researchers from top Chinese universities. The company also hires 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 develop its own data center clusters for model training, using Nvidia H800 chips as a less-powerful alternative to the H100 chip available to US companies.

DeepSeek's AI models have been making waves in the industry, with its DeepSeek-V2 family of models performing well in various AI benchmarks and being far cheaper to run than comparable models. The company's latest model, DeepSeek-V3, has further solidified its reputation, outperforming both downloadable and closed models from other companies. Its R1 "reasoning" model, released in January, has also impressed, performing as well as OpenAI's o1 model on key benchmarks.

However, there is a catch - DeepSeek's models are subject to benchmarking by China's internet regulator to ensure that its responses "embody core socialist values." This means that its chatbot app won't answer questions about sensitive topics such as Tiananmen Square or Taiwan's autonomy. Despite this, the app has seen massive traffic, with over 16.5 million visits in March, although this pales in comparison to ChatGPT's 500 million weekly active users.

DeepSeek's business model is unclear, with the company pricing its products and services well below market value and giving some away for free. It's also not taking investor money, despite significant interest from venture capitalists. The company claims that efficiency breakthroughs have enabled it to maintain extreme cost competitiveness, although some experts dispute these figures.

Despite the controversy surrounding DeepSeek, its models have been widely adopted by developers, with over 500 "derivative" models of R1 created on the Hugging Face platform, racking up 2.5 million downloads combined. The company's success has been described as "upending AI" and "over-hyped," and has even led to a public response from OpenAI CEO Sam Altman.

The US government has taken notice of DeepSeek's rise, with the Commerce department banning the use of DeepSeek on government devices in March. Microsoft, on the other hand, has announced that DeepSeek is available on its Azure AI Foundry service. Nvidia CEO Jensen Huang has praised DeepSeek's "excellent innovation," saying that its models are great for Nvidia because they require more compute power.

As the AI landscape continues to evolve, it remains to be seen what the future holds for DeepSeek. While improved models are a given, the US government appears to be growing wary of what it perceives as harmful foreign influence. With the US likely to ban DeepSeek on government devices, it's clear that the AI race is about to get even more intense.