AI's Sputnik moment: China's DeepSeek chatbot shakes tech market

Chinese firm DeepSeek's artificial intelligence chatbot has soared to the top of the Apple Store's download charts, stunning industry insiders and analysts with its ability to match its US competitors.

The programme has shaken up the tech industry and hit US titans including Nvidia and Meta, which has spent vast sums of cash to get ahead in the fast-developing AI sector.

DeepSeek was developed by a start-up based in the eastern Chinese city of Hangzhou, known for its high density of tech firms.

Available as an app or on a desktop, DeepSeek can do many of the things that its Western competitors do, write song lyrics, help work on a personal development plan, or even write a dinner recipe based on what's in the fridge.

It can communicate in multiple languages, though it told AFP that it was strongest in English and Chinese.

It is subject to many of the limitations seen in other Chinese-made chatbots, Baidu's Ernie Bot asked about leader Xi Jinping or Beijing's policies in the western region of Xinjiang, and it implored AFP to "talk about something else".

But from writing complex code to solving difficult sums, industry insiders have been astonished by just how well DeepSeek's abilities match the competition.

"What we've found is that DeepSeek is the top performing, or roughly on par with the best American models," Alexandr Wang, CEO of Scale AI, told CNBC.

That's all the more surprising given what is known about how it was made.

Critical advantage

In a paper detailing its development, the firm said the model was trained using only a fraction of the chips used by its Western competitors.

Analysts had long thought that the United States' critical advantage over China when it comes to producing high-powered chips and its ability to prevent the Asian power from accessing the technology would give it the edge in the AI race.

But DeepSeek said they spent only $5.6 million developing their model peanuts when compared with the billions US tech giants have poured into AI.

Shares in major tech firms in the US and Japan have tumbled as the industry takes stock of the challenge from DeepSeek.

Chip-making giant Nvidia the world's dominant supplier of AI hardware and software closed down more than three percent on Wall Street on Friday.

Venture capitalist Marc Andreessen, a close advisor to Trump, described it as "AI's Sputnik moment" a reference to the Soviet satellite launch that sparked the Cold War space race.

"DeepSeek R1 is one of the most amazing and impressive breakthroughs I've ever seen," he wrote on X.

Silicon Valley rivals

Like its Western competitors Chat-GPT, Meta's Llama and Claude, DeepSeek uses a large-language model with massive quantities of texts to train their everyday language use.

But unlike Silicon Valley rivals, who have developed proprietary LLMs, DeepSeek is open source, meaning anyone can access the app's code, see how it works and modify it themselves.

Beijing's leadership has vowed to be the world leader in AI technology by 2030 and is projected to spend tens of billions in support for the industry over the next few years.

And the success of DeepSeek suggests that Chinese firms may have begun leaping the hurdles placed in their way.