Chinese AI lab DeepSeek has taken the tech world by storm, with its chatbot app rising to the top of the Apple App Store charts and sparking concerns about the US's lead in the AI race. The company's AI models, trained using compute-efficient techniques, have impressed Wall Street analysts and technologists alike, leading to questions about the sustainability of demand for AI chips.

But where did DeepSeek come from, and how did it achieve 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. Founded by AI enthusiast Liang Wenfeng in 2015, High-Flyer launched DeepSeek as a lab dedicated to researching AI tools in 2023, with the lab eventually spinning off into its own company.

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 build its own data center clusters for model training, albeit using less-powerful Nvidia H800 chips.

DeepSeek's AI models have been the key to its success. The company unveiled its first set of models, including DeepSeek Coder, DeepSeek LLM, and DeepSeek Chat, in November 2023. However, it was the release of its next-gen DeepSeek-V2 family of models last spring that truly caught the attention of the AI industry. DeepSeek-V2, a general-purpose text- and image-analyzing system, performed well in various AI benchmarks and was significantly cheaper to run than comparable models at the time.

The release of DeepSeek-V3 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. DeepSeek's R1 "reasoning" model, launched in January, has also impressed, performing as well as OpenAI's o1 model on key benchmarks.

However, there is a catch to DeepSeek's models. As Chinese-developed AI, they are subject to benchmarking by China's internet regulator to ensure that their responses "embody core socialist values." This means that DeepSeek's chatbot app, for example, won't answer questions about Tiananmen Square or Taiwan's autonomy.

DeepSeek's business model is unclear, but the company's pricing strategy has been described as "extremely aggressive." Despite this, developers have flocked 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 sent shockwaves through the tech industry, with Nvidia's stock price dropping by 18% on Monday and OpenAI CEO Sam Altman issuing a public response. Microsoft has announced that DeepSeek is available on its Azure AI Foundry service, while Meta CEO Mark Zuckerberg has stated that spending on AI infrastructure will continue to be a "strategic advantage" for the company.

However, not everyone is welcoming DeepSeek with open arms. Some companies and governments, including South Korea and New York state, have banned the use of DeepSeek's models on government devices. The US government is also growing wary of what it perceives as harmful foreign influence.

As the tech world continues to grapple with the implications of DeepSeek's rise to fame, one thing is clear: the AI landscape is changing rapidly, and the US's lead in the AI race is no longer a foregone conclusion.