Chinese AI lab DeepSeek has taken the tech world by storm, with its chatbot app surging to the top of the Apple App Store and Google Play charts. This sudden rise to fame has sparked concerns among Wall Street analysts and technologists about 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 answer lies in its origins as a lab dedicated to researching AI tools, backed by High-Flyer Capital Management, a Chinese quantitative hedge fund that uses AI to inform its trading decisions. Founded in 2015 by AI enthusiast Liang Wenfeng, High-Flyer launched DeepSeek as a separate company in 2023, with a focus on building its own data center clusters for model training.

Despite being affected by US export bans on hardware, DeepSeek has managed to develop strong AI models, including DeepSeek Coder, DeepSeek LLM, and DeepSeek Chat, which were unveiled in November 2023. However, it was the release of its next-gen DeepSeek-V2 family of models in spring 2024 that really caught the attention of the AI industry. These models performed well in various AI benchmarks and were far cheaper to run than comparable models at the time, forcing domestic competitors to cut prices and make some models free.

DeepSeek's latest model, DeepSeek-V3, launched in December 2024, has only added to the company's notoriety. According to internal benchmark testing, DeepSeek V3 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, performs as well as OpenAI's o1 model on key benchmarks, making it a reliable choice for domains such as physics, science, and math.

However, there is a downside to DeepSeek's models. As Chinese-developed AI, they are subject to benchmarking by China's internet regulator to ensure that its responses "embody core socialist values." This means that the models may not provide accurate or unbiased information on certain topics, such as Tiananmen Square or Taiwan's autonomy.

DeepSeek's business model is also unclear, with the company pricing its products and services well below market value and giving some away for free. Despite this, developers have taken to DeepSeek's models, which are available under permissive licenses that allow for commercial use. According to Clem Delangue, the CEO of Hugging Face, one of the platforms hosting DeepSeek's models, developers on Hugging Face have created over 500 "derivative" models of R1 that have racked up 2.5 million downloads combined.

DeepSeek's success has been described as "upending AI" and "over-hyped," and has had a significant impact on the industry. Nvidia's stock price dropped by 18% in January, and OpenAI CEO Sam Altman publicly responded to DeepSeek's rise. In March, the US Commerce department bureaus told staffers that DeepSeek will be banned on their government devices, according to Reuters.

Despite this, Microsoft announced that DeepSeek is available on its Azure AI Foundry service, and CEO Mark Zuckerberg said that spending on AI infrastructure will continue to be a "strategic advantage" for Meta. However, OpenAI has called DeepSeek "state-subsidized" and "state-controlled," and recommends that the US government consider banning models from DeepSeek.

Nvidia CEO Jensen Huang, on the other hand, emphasized DeepSeek's "excellent innovation," saying that it and other "reasoning" models are great for Nvidia because they need so much more compute. However, some companies and countries, including South Korea and New York state, have banned DeepSeek, citing concerns about foreign influence.

As for what DeepSeek's future might hold, it's not clear. Improved models are a given, but the US government appears to be growing wary of what it perceives as harmful foreign influence. In March, The Wall Street Journal reported that the US will likely ban DeepSeek on government devices. One thing is certain, however: DeepSeek's sudden rise to fame has shaken up the AI industry and raised important questions about the future of AI development.