Business
What is DeepSeek? And How Is It Upending A.I.?
Tech stocks tumbled. Giant companies like Meta and Nvidia faced a barrage of questions about their future. Tech executives took to social media to proclaim their fears.
And it was all because of a little-known Chinese artificial intelligence start-up called DeepSeek.
DeepSeek caused waves all over the world on Monday as one of its accomplishments — that it had created a very powerful A.I. model with far less money than many A.I. experts thought possible — raised a host of questions, including whether U.S. companies were even competitive in A.I. anymore.
DeepSeek is “AI’s Sputnik moment,” Marc Andreessen, a tech venture capitalist, posted on social media on Sunday.
How could a company that few people had heard of have such an effect?
What is DeepSeek?
DeepSeek is a start-up founded and owned by the Chinese stock trading firm High-Flyer. Its goal is to build A.I. technologies along the lines of OpenAI’s ChatGPT chatbot or Google’s Gemini. By 2021, DeepSeek had acquired thousands of computer chips from the U.S. chipmaker Nvidia, which are a fundamental part of any effort to create powerful A.I. systems.
In China, the start-up is known for grabbing young and talented A.I. researchers from top universities, promising high salaries and an opportunity to work on cutting-edge research projects. Both High-Flyer and DeepSeek are run by Liang Wenfeng, a Chinese entrepreneur.
Over the past few years, DeepSeek has released several large language models, which is the kind of technology that underpins chatbots like ChatGPT and Gemini. On Jan. 10, it released its first free chatbot app, which was based on a new model called DeepSeek-V3.
Why did the stock market react to it now?
When DeepSeek introduced its DeepSeek-V3 model the day after Christmas, it matched the abilities of the best chatbots from U.S. companies like OpenAI and Google. That alone would have been impressive.
But the team behind the new system also revealed a bigger step forward. In a research paper explaining how it built the technology, DeepSeek said it used only a fraction of the computer chips that leading A.I. companies relied on to train their systems.
The world’s top companies typically train their chatbots with supercomputers that use as many as 16,000 chips or more. DeepSeek’s engineers said they needed only about 2,000 Nvidia chips.
Why is that important?
Since late 2022, when OpenAI set off the A.I. boom, the prevailing notion had been that the most powerful A.I. systems could not be built without investing billions of dollars in specialized A.I. chips. That would mean that only the biggest tech companies — such as Microsoft, Google and Meta, all of which are based in the United States — could afford to build the leading technologies.
(The New York Times has sued OpenAI and its partner, Microsoft, claiming copyright infringement of news content related to A.I. systems. The two tech companies have denied the suit’s claims.)
But DeepSeek’s engineers said they needed only about $6 million in raw computing power to train their new system. That was roughly 10 times less than what Meta spent building its latest A.I. technology.
How did DeepSeek make its tech with fewer A.I. chips?
Top A.I. engineers in the United States say that DeepSeek’s research paper laid out clever and impressive ways of building A.I. technology with fewer chips.
In short, the startup’s engineers demonstrated a more efficient way of analyzing data using the chips. Leading A.I. systems learn their skills by pinpointing patterns in huge amounts of data, including text, images and sounds. DeepSeek described a way of spreading this data analysis across several specialized A.I. models — what researchers call a “mixture of experts” method — while minimizing the time lost by moving data from place to place.
Others have used similar methods before, but moving information between the models tended to reduce efficiency. DeepSeek did this in a way that allowed it to use less computing power.
“It has become very clear that other companies, not just someone like OpenAI, can build these kinds of systems,” said Tim Dettmers, a researcher at the Allen Institute for Artificial Intelligence in Seattle and a professor of computer science at Carnegie Mellon University who specializes in building efficient A.I. systems. “DeepSeek used methods that anyone can duplicate.”
DeepSeek’s research paper raised questions about whether big U.S. companies could maintain a significant lead in A.I. Many experts believe that A.I. technology will become a commodity, with many companies selling much the same product.
Is DeepSeek’s tech as good as systems from OpenAI and Google?
DeepSeek-V3 can answer questions, solve logic problems and write its own computer programs as effectively as anything already on the market, according to standard benchmark tests.
Just before DeepSeek released its technology, OpenAI had unveiled a new system, called OpenAI o3, which seemed more powerful than DeepSeek-V3. But OpenAI has not released this system to the wider public.
OpenAI o3 was designed to “reason” through problems involving math, science and computer programming. Many experts pointed out that DeepSeek had not built a reasoning model along these lines, which is seen as the future of A.I.
Then on Jan. 20, DeepSeek released its own reasoning model called DeepSeek R1, and it, too, impressed the experts. That eventually sent U.S. investors and others into a panic late last week and over the weekend as they realized the importance of DeepSeek’s new technology.
U.S. tech giants are building data centers with specialized A.I. chips. Does this still matter, given what DeepSeek has done?
Yes, it still matters.
Large numbers of A.I. chips can still help companies in many ways. With more chips, they can run more experiments as they explore new ways of building A.I. In other words, more chips can still give companies a technical and competitive advantage.
More chips will also be needed to operate the new breed of “reasoning” A.I. models, experts said. These require more computing power when people and businesses use them.
Hasn’t the United States limited the number of Nvidia chips sold to China?
Yes. To maintain the U.S. lead in the global A.I. race, the Biden administration had put in place rules limiting the number of powerful chips that could be sold to China and other rivals.
But the impressive performance of the DeepSeek model raised questions about the unintended consequences of the American government’s trade restrictions. The controls have forced researchers in China to get creative with a wide range of tools that are freely available on the internet.
Some experts continue to argue in favor of U.S. trade restrictions, saying that they were only recently put in place and that they will have a greater effect on China’s abilities to create A.I. as the years pass.
Does DeepSeek’s tech mean that China is now ahead of the United States in A.I.?
No. The world has not yet seen OpenAI’s o3 model, and its performance on standard benchmark tests was more impressive than anything else on the market. But experts are concerned that China is jumping ahead on open-source A.I. systems.
What exactly is open-source A.I.?
Like many other companies, DeepSeek has “open sourced” its latest A.I. system, which means that it has shared the underlying computer code with other businesses and researchers. This allows others to build and distribute their own products using the same technologies.
This is part of the reason DeepSeek and others in China have been able to build competitive A.I. systems so quickly and inexpensively.
In the A.I. world, open source first gathered steam in 2023 when Meta freely shared an A.I. system called Llama. At the time, many assumed that the open-source ecosystem would flourish only if companies like Meta — giant firms with huge data centers filled with specialized chips — continued to open source their technologies.
But DeepSeek and others have shown that this ecosystem can thrive in ways that extend beyond the American tech giants.
Why is that important?
Many experts have argued that the big U.S. companies should not open source their technologies because they could be used to spread disinformation or cause other serious harm. Some U.S. lawmakers have explored the possibility of preventing or throttling the practice.
But other experts have argued that if regulators stifle the progress of open-source technology in the United States, China will gain a significant edge. If the best open-source technologies come from China, these experts argue, U.S. researchers and companies will build their systems atop those technologies.
In the long run, that could put China at the heart of A.I. research and development, which could further accelerate its effort to build a wide range of A.I. technologies, including autonomous weapons and other military systems.
Across Europe, the lesson from an old proverb just might be taking hold: Fool me once, shame on you; fool me twice, shame on me.
For the second time in under five years, Europe is contending with an energy crisis set off by a war. Europeans have responded to the price shock by rushing to line up heat pumps, solar panels and electric vehicles. They are hoping to lower their bills and reduce their reliance on imported fossil fuels.
In March, the first month of the war in the Middle East, more than 344,000 electric vehicles were registered across Europe, over 40 percent more than a year earlier, according to the European Automobile Manufacturers’ Association. Solar panel sales for Britain’s biggest power company, Octopus Energy, jumped 50 percent. And in Germany, inquiries about residential solar systems doubled compared with recent months, according to E.ON, an energy company.
Over the first three months of the year, about 575,000 heat pumps were sold in 11 large European countries, up 17 percent from a year earlier, the European Heat Pump Association said. The increases were particularly large in France, Germany and Poland.
For Heizma, an Austrian company that installs heat pumps, solar panels and other residential electrification services, sales in March and April broke records.
Since the war stopped a vast majority of fuel shipments through the Strait of Hormuz, the price of European natural gas, which is relied on to heat homes and power factories, has risen about 40 percent.
As prices spiked, interest in alternative energy supplies kept rising. Michael Kowatschew, a founder of Heizma, said customer inquiries were up 20 percent. Many of them invoked the importance of “resilience” and “European sovereignty.”
Russia’s invasion of Ukraine in 2022 was a jolt for Europe, which had been dependent on Russia for critical supplies of energy. European governments turned to other gas and oil exporters, including the United States.
Europeans are noticing “more and more how dependent we are not only on fossil fuels but, through fossil fuels, on other countries and other regions,” Mr. Kowatschew said.
The European Union has spent an additional 24 billion euros on energy imports in under two months, said Ursula von der Leyen, the president of the European Commission.
“Households are now seeing that they are only one Trump-ignited war away from very expensive tank refueling or heating bills,” said Elisabetta Cornago, an energy and climate policy expert at the Center for European Reform.
This “shock-awareness factor” means that demand for electric vehicles, heat pumps and solar panels is likely to keep rising, she said.
Demand has increased even as European governments have started to cut taxes on energy bills and diesel and gasoline at the pump to shield households. The costs of solar panels and electric vehicles, still out of reach for some households, are becoming more affordable. Last week, Volkswagen, Europe’s largest automaker, revealed a new electric vehicle model with a starting price under €25,000 (about $29,000), more than 25 percent below a comparable VW popular model.
In Britain, the government said it would allow the sale of plug-in solar panels within the next few months. These devices, which can be attached to a balcony, can help curb energy bills and don’t require the more expensive installation of rooftop panels. They will be widely available in supermarkets and online.
In the meantime, rooftop solar has become more popular. Danny Hirst, the managing director at the Green Way Solar, which installs solar panels in England, has noticed a sharp increase in interest. Last fall, his company was receiving about 10 inquiries a week. Now, it sometimes gets 20 in a single day, he said.
“The general feeling that we’re hearing from clients now is that they’re just getting fed up with the uncertainty of energy prices,” Mr. Hirst said.
But will the interest be sustained? Companies and business groups said it was too soon to know.
For customers, there’s red tape. It can take weeks or months, partly because of regulatory approvals, for a customer to go from deciding to buy a heat pump or solar panels to installing them.
Then there is the push-pull issue of government policies over financial incentives or subsidies, which can drive consumer demand but cause it to taper if they are not designed properly.
Since the war started, countries across Europe have already put in place short-term measures to lower energy costs — more than €10 billion worth, according to an estimate by Bruegel, a think tank in Brussels.
The measures, such as tax cuts on gas at the pump and electricity bills, are predominately aimed at large parts of the population. Experts said governments should target their assistance to the most vulnerable households, while spending more to subsidize low-carbon energy.
This has echoes of the crisis from 2022. At the time, Europe had suddenly shifted away from Russian gas imported via pipelines, a prominent source of fuel. Energy prices rose sharply. Demand for electric vehicles, solar panels and heat pumps jumped.
But when Europe found other sources of natural gas and prices dropped from their peak, interest in renewable technologies waned. Meanwhile, governments had spent hundreds of billions of dollars to shield households and businesses from high energy costs, further reducing the urgency for households to switch to renewables, some analysts said.
Simone Tagliapietra, an energy and climate policy expert at Bruegel, said the lesson for policymakers from 2022 was that they should increase their support for low-carbon technologies, not broad based-measures that cheapen energy from oil and gas. The moment, he said, presents an opportunity for governments.
“We are facing a full-fledged oil and gas crisis,” Mr. Tagliapietra said.
At the same time, history shows that financial incentives needed to sustain consumer interest in technologies like solar panels must be consistent.
Mr. Hirst of the Green Way Solar has been in the solar industry for nearly a dozen years and has experienced the market’s ups and downs. There was a boom right after the 2022 crisis, he said, but then sales dropped. The promise of subsidies drove up interest in renewable technologies, but consumers then waited to make sure they received a subsidy before deciding to install solar panels or heat pumps.
There is a risk that this could happen again.
In Austria, demand for heat pumps dropped in the first three months of this year when some government funds for subsidies ran out.
Mr. Kowatschew at Heizma, the Austrian installation firm, said he was cautious about expanding too quickly. The company was established only two years ago. Its focus is on finding ways to make the installation process faster and more efficient so that workers can outfit two heat pumps a week instead of one, he said.
Still, business is good. Heizma made about €2 million in revenue in April, he said.
“Everyone now knows electrification makes sense,” he said. “It makes a lot of sense to switch to heat pumps, to solar and green electricity.”
Cloudflare is laying off 20% of its staff, the latest technology company to announce big cuts as it uses more artificial intelligence-powered tools.
The San Francisco web performance and cybersecurity company said it was getting rid of 1,100 people.
“The way we work at Cloudflare has fundamentally changed,” Chief Executive Matthew Prince and Chief Operating Officer Michelle Zatlyn told employees in an e-mail. “We don’t just build and sell AI tools and platforms. We are our own most demanding customer.”
It is the latest tech company this week to announce massive layoffs as tech workers embrace the use of AI agents to perform tasks such as generating code more quickly. Coinbase said Tuesday that it would cut 14% of its workforce, or roughly 700 workers. PayPal is reportedly planning to slash 20% of its staff.
Other companies such as Meta, Block and Oracle have announced layoffs this year. From January to April, U.S. tech employers announced 85,411 job cuts, up 33% from the same period last year, outplacement and executive coaching firm Challenger, Gray & Christmas said Thursday.
Cloudflare’s email, which was published on its blog, said that in the last three months, its use of AI has jumped more than 600%. Employees in various roles in engineering, HR, finance and marketing are running “thousands of AI agent sessions each day to get their work done,” and the company has to be “intentional” as it prepares for the “agentic AI era,” the email said.
Cloudflare executives added that the company is hoping to avoid further major layoffs.
“We are making these changes now because making smaller, repeated cuts or dragging a reorganization out over multiple quarters creates prolonged emotional uncertainty for employees and stalls our ability to build,” the email said.
The company estimates that severance and other restructuring will cost between $140 million and $150 million for 2026.
Cloudflare didn’t say how many of those cuts will be in its San Francisco office. The company has offices in other parts of the world, including Asia, Europe and the Middle East, according to its website.
As of December, Cloudflare had 5,156 employees.
Cloudflare announced job cuts the same day it reported its first-quarter earnings. The company’s revenue jumped 34% year-over-year to $639.8 million in the first quarter. It posted a net loss of $22.9 million.
But the company’s forecast for the second quarter fell short of Wall Street’s expectations. Cloudflare projected revenue of $664 million to $665 million for the second quarter, which was lower than the $666 million Wall Street anticipated.
Cloudflare’s stock dropped roughly 18% to $209 per share in after-hours trading.
The unique global status of the U.S. dollar and financial markets, and the strength of the U.S. economy, have enabled the government to retain its current rating. “A large, dynamic economy, the dollar’s reserve-currency role and the depth and liquidity of U.S. capital markets are key sovereign rating strengths,” Fitch said. But a variety of “governance” issues under the Trump administration, as well as the conflict in the Middle East, along with persistent and widening budget deficits, have challenged that credit rating.
Nonetheless, U.S. Treasuries have attracted global investors as a “safe haven” during the conflict. Other countries, like Britain, don’t have that status now. British 30-year government bonds, known as gilts, have reached their highest level since 1998. And Britain’s benchmark 10-year bond yield was close to 5 percent, a premium of more than 0.6 percentage points above the equivalent Treasury.
Major world central banks have responded defensively to these financial storms. As I wrote last week, the Bank of Japan, European Central Bank, Bank of England and Federal Reserve have all decided to take no action on their key interest rates because of the dual risks posed by rising oil prices resulting from the war with Iran: There are heightened risks of both runaway inflation and throttled economic growth.
That dilemma continues. Kevin M. Warsh, nominated to succeed Jerome H. Powell as Federal Reserve chair, has spoken frequently of the need to trim interest rates but the markets are skeptical. They project no Fed action on rates through December 2027 as the most likely outcome, with a greater possibility of interest rate increases than of reductions, according to futures prices tracked by CME FedWatch.
In short, central banks, which control the shortest-duration interest rates, and the bond market, which sets longer rates, view the economic environment with a jaundiced eye. There is a range of possibilities, from prosperity in many developed markets to chaos if the conflict in the Middle East widens. Fixed-income markets tend to focus on risks more than on the potential for windfall profits that the stock market cherishes.
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