Name: DeepSeek R1 - The Chinese AI "Side Project" That Shocked the Entire Industry!
Uploaded: 2025-01-27T19:09:44.000Z
Duration: 16 min 45 s
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DeepSeek R1 was released just a few days ago and it has sent shockwaves through the AI industry.

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R1 is an AI model that has the ability to think just like OpenAI's cutting-edge, state-of-the-art O1 and O3 models.

But here's the thing, it's completely open source and open weights.

DeepSeek, a small Chinese company, gave all of it away for free and they even detailed how to reproduce it.

It was trained for just $5 million, as compared to the tens and hundreds of millions of dollars that most people in the AI industry thought was required to train a model of this caliber.

And it has sent everyone in the AI industry scrambling to understand the ramifications.

DeepSeek has been called everything from the downfall of major US tech companies like OpenAI and Meta, to the greatest gift to humanity, to a Chinese psyop meant to shake the US to its core.

So just about a week ago, President Trump, Sam Altman, the founder and CEO of OpenAI, the founder of Oracle, and many others got together to make the announcement about Project Stargate.

That is a $500 billion investment in AI infrastructure built in the US.

That is on top of the billions and potentially trillions that have already been spent on GPUs, mostly coming from NVIDIA.

Then, right after that, Mark Zuckerberg doubled down on how much his company, Meta, is going to spend on AI infrastructure.

Also stating that they are going to continue to spend many billions of dollars building out energy infrastructure and AI infrastructure.

So the theme amongst the biggest tech companies in the world is spend as much as we can to win at AI.

On January 20th, 2025, a small Chinese research firm called DeepSeek released DeepSeek R1, a completely open source, open weights, AI model that has the ability to think, also known as test time compute, that is directly competitive, if not slightly better than the O1 model by OpenAI that cost hundreds of millions of dollars to train.

And just like that, the AI world was flipped upside down.

All of a sudden, we had this completely open source version of a state-of-the-art model that we didn't think we were going to have so soon, let alone to be absolutely open source and essentially free.

The initial reaction was extremely strong.

I'll drop them down in the description below.

The biggest names in the AI industry realized we now had a completely open source, state-of-the-art model.

And as everybody was taking this in and super excited that we can play around with it, reproduce it, suddenly the tone shifted.

In the technical paper that was released alongside DeepSeek, it was noted that that model was trained for just $5 million.

That is a fraction of the cost of what every other state-of-the-art model costs to train.

Meta, Microsoft, OpenAI, and all of the magnificent seven, basically the biggest seven tech companies in the world, have been investing trillions of dollars building out AI infrastructure.

And then all of a sudden, this little Chinese company comes along, open sources a model that's comparable to the best models out there.

And not only did they make it completely free, but they said it only costs $5 million.

And then all of a sudden, a lot of analysts are looking at these big companies spending billions of dollars per year and thinking, do we really need that?

And a lot of people are pointing at these big companies saying, you guys are about to  You've invested so much money and it wasn't even necessary.

Now I will tell you, I do not agree with that whatsoever.

But that is a theme going on right now in the AI industry.

And then somebody on Twitter asked, how is DeepSeek going to make money?

How are they actually going to make money?

And the API endpoint to actually run the model is really, really cheap.

DeepSeek's holding, and this is the Chinese company's name, is a quant company, meaning They are mathematicians tasked with building trading algorithms simply to make money.

Many years already, super smart guys with top math background happen to own a lot of GPU for trading mining purposes.

And DeepSeek is their side project for squeezing those GPUs.

Essentially, this is not even the main function of the company.

So a handful of smart people got together, figured out how to make a state of the art model, incredibly cheap, append the entire AI industry, and it was their side project.

Let me show you a few of the reactions from people in the industry.

Sam spent more on this, referencing this incredible automobile, which I know is multiple millions of dollars, and that Sam Altman driving it, than DeepSeek did to train the model that killed OpenAI.

I will explain what I think is going on in a little bit.

Here we have Neil Khosla, son of Vinod Khosla, saying, DeepSeek is a CCP state psyop, plus economic warfare to make American AI unprofitable.

They are faking the cost was low to justify setting price low and hoping everyone switches to it to damage AI competitiveness in the US.

Now, there was a community note saying there's zero evidence of this.

In Davos, Alexander Wang, the CEO of ScaleAI, basically called out DeepSeek saying, no, they actually have many more GPUs than they're telling us, simply because there is an export ban on China from the US that we cannot export our cutting edge chips to them at scale.

And so in the research paper, if they admitted that they had a bunch of GPUs, obviously, the US would be pretty pissed.

And in this clip, Alexander Wang talks about how DeepSeek probably has 50,000 H100s, which are NVIDIA's top of the line GPUs.

And the fact that they can't talk about it because it goes against the export controls that the US has in place.

And maybe that's true, although, again, remember, everything is open sourced and they really went into deep detail, they being DeepSeek, into how they actually produced this model for so cheap.

And the company hugging face is reproducing it right now.

Now let me show you some posts from Emad, who is the founder of Stability AI, who basically ran the numbers and figured out, yeah, it's actually legit what they're saying.

It's pretty much in line with what you'd expect, given the data structure, active parameters and other elements and other models trained by other people.

You can run it independently at the same cost.

He didn't put any numbers, but of course, he followed up and did.

So he basically says, for those who want the numbers here, it is optimized.

H100 could do it in less than 2.5 million.

And again, now all of the focus is back to the major tech companies, Anthropic, Meta, Open AI, Microsoft, who have raised and spent billions and billions of dollars to build out AI infrastructure only to have the rug pulled out from under them from this tiny Chinese company.

DeepSeek goes mega viral and they can handle the demand on their two Chromebooks they have to use for inference.

Meanwhile, Anthropic cannot handle the load of their paying customers with billions in funding.

And that seems to be the sentiment across the board.

I've made over 200,000 requests to the DeepSeek API in the last few hours, zero rate limiting and the whole thing cost me like 50 cents.

We've been talking on this channel a lot about test time compute.

A lot of the scaling that's happening in AI right now is not at pre-training, not that $5 million that it costs to actually build out the model.

But since these models can now think and the more thinking they do, the better the results, that thinking is actually just compute.

And so what's interesting about this is that even at test time, so they're hitting the API 200,000 times, zero rate limiting and extremely inexpensive, unless they are just losing tons of money and have a bunch of GPUs that we don't know about, they've figured out something about efficiency that the U.S. companies have not.

Alexander Wang follows up with a post, DeepSeek is a wake up call for America, but it doesn't change the strategy.

USA must out innovate and race faster, as we have done in the entire history of AI and tighten export controls on chips so that we can maintain future leads.

Every major breakthrough in AI has been American.

And continuing, China's DeepSeek could represent the biggest threat to U.S. equity markets as the company seems to have built a groundbreaking AI model at an extremely low price and without having access to cutting edge chips, calling into question the utility of the hundreds of billions of dollars worth of capex being poured into the industry.

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DeepSeek R1 - The Chinese AI "Side Project" That Shocked the Entire Industry!

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