A small Chinese artificial intelligence lab stunned the world this week by revealing the technical recipe for its cutting-edge model, turning its reclusive leader into a national hero who has defied US attempts to stop China’s high-tech ambitions.
DeepSeek, founded by hedge fund manager Liang Wenfeng, released its R1 model on Monday, explaining in a detailed paper how to build a large language model on a bootstrapped budget that can automatically learn and improve itself without human supervision.
US companies including OpenAI and Google DeepMind pioneered developments in reasoning models, a relatively new field of AI research that is attempting to make models match human cognitive capabilities. In December, the San Francisco-based OpenAI released the full version of its o1 model but kept its methods secret.
DeepSeek’s R1 release sparked a frenzied debate in Silicon Valley about whether better resourced US AI companies, including Meta and Anthropic, can defend their technical edge.
Meanwhile, Liang has become a focal point of national pride at home. This week, he was the only AI leader selected to attend a publicised meeting of entrepreneurs with the country’s second-most powerful leader, Li Qiang. The entrepreneurs were told to “concentrate efforts to break through key core technologies.”
In 2021, Liang started buying thousands of Nvidia graphic processing units for his AI side project while running his quant trading fund High-Flyer. Industry insiders viewed it as the eccentric actions of a billionaire looking for a new hobby.
“When we first met him, he was this very nerdy guy with a terrible hairstyle talking about building a 10,000-chip cluster to train his own models. We didn’t take him seriously,” said one of Liang’s business partners.
“He couldn’t articulate his vision other than saying: I want to build this, and it will be a game change. We thought this was only possible from giants like ByteDance and Alibaba,” the person added.
Liang’s status as an outsider in the AI field was an unexpected source of strength. At High-Flyer, he built a fortune by using AI and algorithms to identify patterns that could affect stock prices. His team became adept at using Nvidia chips to make money trading stocks. In 2023, he launched DeepSeek, announcing his intention to develop human-level AI.
“Liang built an exceptional infrastructure team that really understands how the chips worked,” said one founder at a rival LLM company. “He took his best people with him from the hedge fund to DeepSeek.”
After Washington banned Nvidia from exporting its most powerful chips to China, local AI companies have been forced to find innovative ways to maximise the computing power of a limited number of onshore chips — a problem Liang’s team already knew how to solve.
“DeepSeek’s engineers know how to unlock the potential of these GPUs, even if they are not state of the art,” said one AI researcher close to the company.
Industry insiders say DeepSeek’s singular focus on research makes it a dangerous competitor because it is willing to share its breakthroughs rather than protect them for commercial gains. DeepSeek has not raised money from outside funds or made significant moves to monetise its models.
“DeepSeek is run like the early days of DeepMind,” said one AI investor in Beijing. “It is purely focused on research and engineering.”
Liang, who is personally involved in DeepSeek’s research, uses proceeds from his hedge fund trading to pay top salaries for the best AI talent. Along with TikTok-owner ByteDance, DeepSeek is known for giving the highest remuneration available to AI engineers in China, with staff based in offices in Hangzhou and Beijing.
“DeepSeek’s offices feel like a university campus for serious researchers,” said the business partner. “The team believes in Liang’s vision: to show the world that the Chinese can be creative and build something from zero.”
DeepSeek and High-Flyer did not respond to a request for comment.
Liang has styled DeepSeek as a uniquely “local” company, staffed with PhDs from top Chinese schools, Peking, Tsinghua and Beihang universities rather than experts from US institutions.
In an interview with the domestic press last year, he said his core team “did not have people who returned from overseas. They are all local . . . We have to develop the top talent ourselves”. DeepSeek’s identity as a purely Chinese LLM company has won it plaudits at home.
DeepSeek claimed it used just 2,048 Nvidia H800s and $5.6mn to train a model with 671bn parameters, a fraction of what OpenAI and Google spent to train comparably sized models.
Ritwik Gupta, AI policy researcher at the University of California, Berkeley, said DeepSeek’s recent model releases demonstrate that “there is no moat when it comes to AI capabilities”.
“The first person to train models has to expend lots of resources to get there,” he said. “But the second mover can get there cheaper and more quickly.”
Gupta added that China had a much larger talent pool of systems engineers than the US who understand how to get the best use of computing resources to train and run models more cheaply.
Industry insiders say that even though DeepSeek has shown impressive results with limited resources, it remains an open question whether it can continue to be competitive as the industry evolves.
Returns at High-Flyer, its big backer, lagged behind in 2024, which one person close to Liang blamed on the founder’s attention being mostly focused on DeepSeek.
Its US rivals are not standing still. They are building mega “clusters” of Nvidia’s next-generation Blackwell chips, creating the computing power that threatens to once again create a performance gap with Chinese rivals.
This week, OpenAI said it was creating a joint venture with Japan’s SoftBank, dubbed Stargate, with plans to spend at least $100bn on AI infrastructure in the US. Elon Musk’s xAI is massively expanding its Colossus supercomputer to contain more than 1mn GPUs to help train its Grok AI models.
“DeepSeek has one of the largest advanced computing clusters in China,” said Liang’s business partner. “They have enough capacity for now, but not much longer.”
Additional reporting by Wenjie Ding in Beijing
