The United States was considered at the forefront of space exploration when Sputnik 1 changed everything.
The 1957 launch of the first artificial Earth satellite by the Soviet Union kicked off the ‘space race’ which would eventually see the US land on the Moon in 1969.
Now the battle for a new frontier is beginning with the launch of Chinese AI app DeepSeek.
Up to this week, the US seemed to be dominating the fledgling generative AI market with OpenAI’s game-changing ChatGPT app leading the way and the tech giants also aggressively pushing their respective AI assistants, such as Google’s Gemini and Microsoft’s Copilot.
Then DeepSeek shook up Wall Street and the tech world, becoming the most downloaded app on Google and Apple’s app stores and causing the share price of technology stocks to fall Stateside.
New US President Donald Trump warned that the development is a wake-up call for American companies, while officials have warned of security risks, with the US Navy already moving to ban use of the app among employees.
Sputnik moment
Dr Richard Whittle (below), University Fellow at the University of Salford’s Business School – an expert on AI – said that the release of a free premium-level AI tool with a comparatively miniscule development cost “has shaken faith in Silicon Valley and American dominance in the rapidly developing AI market”.
Dr Richard Whittle speaks at FUEL Manchester in 2024
“The economics are quite simple: if a reasoning model can be developed so cheaply, then where is the value in the existing giants such as OpenAI, who have heavily invested in what could be revealed to be inefficient development models?” he asks.
“Likewise, heavy investment in the chips required to develop these models may also be questioned, explaining Nvidia’s massive drop in share price [on the first day].”
Subsequent trading points to some recovery in position. Dr Whittle says it is expected that existing strengths and capital positions may allow for increased development of model capability.
“So what are we seeing right now? Firstly, a rethink in the market, if equivalent models can be developed for a fraction of the cost, does this speed up adoption. Certainly, firms which have already locked into expensive platforms and subscriptions may reconsider their investment. Where does return on investment for model build come from, if there is a cheaper option?
“For the UK, DeepSeek raises interesting possibilities. The Prime Minister’s AI Action Plan pointed to sovereign AI, more efficient development methods may help with this. However, the major issues facing AI in the UK are poor fundamental infrastructures and a declining talent base which limit our participation in the race.
“DeepSeek may well have sped everyone up, but not equally. The ability to capitalise on these developments requires considerable spending and strategic planning.”
Referencing the ‘space race’, he adds: “I would however expect the advances and efficiencies in model development to be incorporated into the US tech sector rapidly. While the DeepSeek ‘Sputnik moment’ may well kickstart a new, even more energetic race, one thing that may spur on the American tech sector is that it is feeling threatened.”
ChatGPT controversy
OpenAI says it has found evidence that DeepSeek used its models to train its open-source competitor.
Luke Hunter, investment manager and sector specialist at Evelyn Partners, said its ‘R1’ model utilises technologies like chain-of-thought prompting and reinforcement learning, similar to OpenAI’s models.
“The new approach constructs a model which is broadly comparable in overall size to existing models but only utilises a fraction of the parameters of the model at any one time, reducing the compute intensity significantly and bringing costs down,” he explains.
“The performance of R1 and GPT’s 01 are similar for coding and maths, but GPT still has a general knowledge advantage.”
He continues: “In our view, what DeepSeek has demonstrated is completely normal and is a natural evolution of this sort of technology. We do not think that cheaper models will necessarily render frontier models, like OpenAI’s GPT, obsolete: while efficiency gains are valuable, frontier models are still necessary for pushing the boundaries of AI development.”
Russ Shaw CBE, founder of Tech London Advocates and Global Tech Advocates, described DeepSeek’s arrival as a “game-changer for the global AI industry… taking on the dominance of US tech giants and setting the stage for intense competition”.
He added: “This new rivalry will drive faster progress, spark fresh ideas, and deliver technologies that benefit people, businesses, and economies worldwide. More importantly, it could fuel economic growth and unlock opportunities to develop talent and skills on a massive scale.
“It’s clear we’re at a pivotal moment that could shape innovation and economic progress for years to come.”
HSBC to wind down investment banking arms in UK, Europe & US
Utility over popularity
Muj Choudhury, CEO and co-founder of AI-powered conversation processing platform RocketPhone.ai, said DeepSeek’s rise challenges the conventional AI development narrative.
“While much of the focus has been on the US-China tech rivalry, DeepSeek’s success proves that AI innovation shouldn’t solely be dictated by access to supercomputers or Silicon Valley funding,” he said.
“The rapid ascent of DeepSeek to the top of app charts and news agendas risks shifting focus away from genuinely useful AI applications towards well-publicised companies – creating a self-fulfilling prophecy of success based on popularity rather than utility.”
He added: “DeepSeek’s rise should also serve as a reminder that AI has never been solely about replicating human consciousness. Yet, AI development has long been dominated by Silicon Valley’s powerful VC firms, which wield immense influence by pouring vast sums into the technology and shaping its trajectory.
“In this landscape, an outsider like DeepSeek breaking through is not just impressive…. it’s necessary. The industry needs challengers to drive real innovation and prevent AI’s future from being monopolised by a handful of players.
“This is particularly significant for Europe’s tech ecosystem, where companies typically operate with more modest resources than their US or Chinese counterparts. For European startups, who have historically excelled at building focused, efficient solutions rather than chasing scale at all costs, DeepSeek’s rise suggests there’s room for strategic players who can execute well without massive capital outlays.
“Perhaps this shift will finally allow us to focus on what truly matters: building practical AI systems that solve real enterprise problems and deliver tangible business value, rather than chasing the next viral consumer app.”
‘Northerners can’t be treated as second class citizens’ – Burnham