How DeepSeek changed the market's mind

Summary

Planet Money Episode Summary: "How DeepSeek Changed the Market's Mind"

Release Date: February 1, 2025

---

Introduction: The Monday Market Shake-Up

The episode kicks off with the Planet Money team—Kenny Malone and Mary Childs—describing a dramatic shift in the stock market triggered by the emergence of a new AI model from a company named DeepSeek. This event is depicted as an "AI apocalypse" that not only caused a massive loss of market capitalization but also provided a pivotal teachable moment about the future of artificial intelligence in the economy.

Notable Quote:

"Today on the show, call it an artificial intelligence earthquake, call it an AI apocalypse, but was not just a market freakout. I mean, it was that markets lost hundreds of billions of dollars, but it was also a teachable moment."
— Kenny Malone (02:07)

---

Background: The Rise of AI and Market Expectations

Two years prior, in November 2022, the introduction of ChatGPT by OpenAI revolutionized perceptions of AI's capabilities. Companies like Google, Meta, Microsoft, and Anthropic invested billions into developing large-scale AI models, believing that immense computing power and vast financial resources were essential to dominate the AI landscape.

Key Points:

• ChatGPT's Impact: Demonstrated AI's potential in creative and analytical tasks, raising concerns about job displacement.
• AI Arms Race: Massive investments by major American tech firms in developing superior AI models.
• Market Assumptions: Success in AI was heavily tied to the scale and sophistication of AI chips and processing power.

---

The Monday Apocalypse: DeepSeek's Disruption

On a seemingly ordinary Monday, the stock market experienced unprecedented volatility. AI-related stocks plummeted, and investors scrambled as DeepSeek, a Chinese hedge fund subsidiary, unveiled an AI model that rivaled the capabilities of established American models but at a fraction of the cost and with less reliance on top-tier semiconductors.

Notable Quotes:

"And so today, AI related stocks started plummeting and TV related people started grasping for big metaphors. It was an earthquake."
— Kenny Malone (01:21)

"We didn't say sell your Nvidia shares. We continue to have a buy recommendation on the shares."
— Angelo Zeno, Equities Analyst at CFRA Research (12:18)

Impact Highlights:

• NASDAQ Plunge: The index dropped by 3.07%, marking the largest single-day loss in market capitalization history.
• Nvidia's Decline: Once valued as the backbone of the AI revolution, Nvidia's stock surged from $6 in 2020 to $142 before plummeting nearly 20% on Monday, erasing approximately $600 billion in its market value.
• Energy Sector Fallout: Constellation Energy, a major nuclear power provider, saw its stock price fall by 20% as markets reconsidered the energy demands of AI.

---

DeepSeek: Challenging the Status Quo

DeepSeek's AI model defied prevailing market assumptions by achieving high performance without the need for exorbitant amounts of computing power or the latest AI chips. This revelation suggested that AI development could become more accessible and less capital-intensive, potentially democratizing AI technology.

Key Developments:

• Cost Efficiency: DeepSeek developed their AI model at a fraction of the cost compared to American counterparts.
• Processing Power: The model did not require top-of-the-line chips, challenging the necessity of companies like Nvidia in the AI supply chain.
• Market Reaction: As DeepSeek's app gained popularity and topped app store charts, investor confidence in existing AI infrastructure companies waned, leading to massive sell-offs.

---

Expert Reactions and Analysis

Angelo Zeno, an equities analyst, provides insights into the market's reaction. Despite the dramatic stock declines, Zeno maintained a bullish stance on Nvidia, believing that the AI revolution would still demand substantial processing power.

Notable Insights:

• Overreaction: Zeno describes the market's panic as an overreaction, emphasizing the continued importance of robust AI infrastructure.
• AI as a Commodity: Leandro von Werra from Hugging Face discusses the possibility of AI models becoming commoditized, leveling the playing field and enabling broader access to powerful AI tools.

Notable Quote:

"The AI revolution will still need lots and lots of processing power. Just, you know, whose chips and how many and what kind."
— Angelo Zeno (12:20)

---

Validation of DeepSeek's Claims

To assess DeepSeek's purported efficiency and performance, Planet Money interviews Leandro von Werra, head of research at Hugging Face. He explains that standardized benchmarks show DeepSeek's model performing on par with leading American AI models. Furthermore, Hugging Face is actively attempting to replicate DeepSeek's model based on their publicly shared methodologies.

Key Points:

• Performance Benchmarks: DeepSeek's AI can solve complex problems, including Math Olympiad questions, at levels comparable to top-tier models.
• Transparency and Replicability: DeepSeek's open approach allows others to build similar models, supporting claims of cost and efficiency.
• Ongoing Validation: Hugging Face is in the process of creating a pipeline to independently verify DeepSeek's model performance and efficiency claims.

Notable Quote:

"We did go bullish on Nvidia actually in March of 2020. Yes. We have continued to pound the table on Nvidia as recently as kind of a week or two ago."
— Angelo Zeno (11:10)

---

Market Implications and Future Outlook

The emergence of DeepSeek signals a potential paradigm shift in the AI industry. If smaller, more agile companies can develop competitive AI models with fewer resources, the market may move away from favoring only the largest tech giants and infrastructure providers.

Implications:

• Shift to AI Adopters: Investment may pivot from AI enablers (chip makers, energy companies) to AI adopters (companies integrating AI into their services).
• Reevaluation of Investment Strategies: Investors are prompted to reconsider their bullish positions on traditional AI infrastructure companies in light of new, more efficient technologies.
• Democratization of AI: Easier access to efficient AI models could spur innovation across various sectors, breaking the monopoly of a few large players.

Notable Quote:

"We're in the same tier as the fancy American AI models... It really is way cheaper than the existing American models for basically the same thing."
— Leandro von Werra (26:39)

---

Conclusion: A New AI Landscape

The episode concludes by highlighting the rapid changes in investor sentiment and market dynamics driven by unexpected advancements like DeepSeek. While Nvidia remains a powerhouse, the potential for AI to become more accessible challenges previously held notions of exclusivity and high barriers to entry. The future of AI appears more democratized, with broader participation and innovation on the horizon.

Final Thoughts:

• Resilience of the AI Revolution: Despite short-term market turbulence, the overarching trend towards AI integration remains robust.
• Investor Adaptation: Investors must navigate the evolving landscape, balancing bets between established infrastructure leaders and emerging AI adopters.

Notable Quote:

"After the break, we sit down with someone actively trying to build DeepSeek from scratch to see how much of all of this is real and did the world really change? On Monday."
— Kenny Malone (19:26)

---

Credits and Acknowledgments

Produced by Willa Rubin with assistance from James Sneed, edited by Keith Romer, and engineered by Neil Tivolt. Special thanks to Haim Israel from Bank of America and research support from Sierra Juarez.

---

For more insights and updates on the evolving AI landscape and its economic implications, subscribe to Planet Money and explore exclusive content through Planet Money+.

Transcript

[Sponsor Message]

This message comes from Spectrum Business, who provides fast, reliable Internet, phone, TV and mobile services to help unlock the unlimited potential of your small business. Learn [e-mail] business just a note.

[Kenny Malone]

In this episode, we will at some point talk about specific AI and tech companies, including Meta, Google, Microsoft and Anthropic, all of which are current financial supporters of npr. Here's the show.

[Planet Money Host]

This is Planet Money from npr.

[Kenny Malone]

Imagine us at Planet Money rolling out of bed late on Monday morning, still in our cozy pajamas.

[Mary Childs]

Yeah, we got our Teenage Mutant Ninja Turtle slippers on. We got our cup of coffee. Big yawn.

[Kenny Malone]

Turn on the old tv and oh my, what is happening in the stock market right now? This is moving so fast, it's stunning.

[Angelo Zeno]

I mean, wow, it is shaking this.

[Kenny Malone]

Entire, entire industry to its core.

[Leandro von Werra]

Crushed the NASDAQ, which plunged 3.07%.

[Kenny Malone]

Yeah.

[Leandro von Werra]

The single largest loss in a day.

[Kenny Malone]

Of market capitalization in history.

[Mary Childs]

What was happening? It was apparently some kind of AI apocalypse.

[Kenny Malone]

Okay, so AI apocalypse. Not so sure about that.

[Mary Childs]

Okay, fine, whatever.

[Kenny Malone]

But without a doubt, this is a monumental shift. Yeah. Because on Monday, AI related stocks started plummeting and TV related people started grasping for big metaphors. It was an earthquake. Today in the world of artificial intelligence, the seismic AI event, a new ish AI model from a company called Deep Seek.

[Mary Childs]

Hello and welcome to Planet Money. I'm Mary Childs.

[Kenny Malone]

And I'm Kenny Malone. Today on the show, call it an artificial intelligence earthquake, call it an AI apocalypse, but was not just a market freakout. I mean, it was that markets lost hundreds of billions of dollars, but it was also a teachable moment.

[Mary Childs]

Oh yes, because if we look at these specific companies that got slammed on Monday and a few that benefited, we can see pretty clearly what people with money are betting our AI future looks like. And this week, the AI model from deepsea has them betting on a very different looking future.

[Kenny Malone]

Or as Jim Cramer so artfully put it.

[Russell Price]

Support for this podcast and the following message come from Ameriprise Financial Chief Economist Russell Price Shares a key investment principle.

[Mary Childs]

Market trends tend to tell us that.

[Angelo Zeno]

Time is on the side of the investor.

[Mary Childs]

Remaining invested through periods of highs and lows is generally one of the better ways to build wealth over the long term.

[Russell Price]

For more information and important disclosures, visit ameriprise.com advice. Past performance is not a guarantee of future results. Security is offered by ameriprise Financial Services, llc, member FINRA and sipc. This message comes from Capital One. With the Venture X card. Earn unlimited double miles on everything you buy, plus get premium benefits at a collection of hotels when booking through Capital One Travel. What's in your wallet? Terms apply [e-mail].

[Kenny Malone]

This week has been a tectonic shift in assumptions about how the world is going to look. So let us first discuss how those assumptions became assumed. We shall visit a simpler, ancient time.

[Mary Childs]

Yes, two years ago, roughly November 2022. This is when the world got its first look at ChatGPT. You will recall, we all lost our minds. ChatGPT could write poetry, it could tell stories. Maybe it could take our jobs. We'd never seen anything like it.

[Kenny Malone]

Now, that AI model was developed by an American company called OpenAI. And their AI model, ChatGPT had taken a ton of time to develop. OpenAI had spent billions of dollars creating it. And as the model developed, it became clear that running better and better versions of GPT would be so expensive because it required the best semiconductors in the world, lots of them.

[Mary Childs]

The American AI arms race began. Google, Meta, Microsoft, all built giant expensive AI models.

[Kenny Malone]

And newer companies got more competitive, too. Anthropic perplexity. Also, with gigantic AI models requir requiring unearthly amounts of compute, as they say, and money, as they also say.

[Mary Childs]

They do say that. And what seemed to be true in all these cases was that in order to compete in the AI revolution, these companies needed unimaginable scale. More and more computing power, more and more investment, billions and billions of dollars.

[Kenny Malone]

If there was a way to win the AI arms race, it seemed pretty clear you needed the scale of a gargantuan company to do so.

[Mary Childs]

And then on Monday, all of those assumptions fell apart, as did the stock market.

[Kenny Malone]

Was Monday a bummer of a day for you? What's what in the grand scheme of days? How does that shape up?

[Angelo Zeno]

Yeah, I mean, listen, as far as kind of Monday morning is concerned, it starts off on a sour note.

[Mary Childs]

Angelo Zeno is an equities analyst at a company called CFRA Research. Angelo's job in part is to look at the tech world and identify good and bad, bad stocks for investors.

[Kenny Malone]

And he says on Monday there were bad signs even before the stock market opened in the United States.

[Angelo Zeno]

I was up at 4 or 5am, which is when I typically wake up. And I already had a number of inquiries in my inbox from investors out in Europe, so.

[Kenny Malone]

And what are those investors like? Angelo, you told us American AI was the future.

[Angelo Zeno]

Yeah, I mean, listen, you know, who, who are the winners? Who are the losers from this? What exactly is happening?

[Mary Childs]

Great questions. European investors, what exactly was Happening.

[Kenny Malone]

Well, so, yeah, Deepseek was happening. Here's the backstory. This Chinese company, a subsidiary of a hedge fund, actually had been developing an AI model just, you know, for fun for its own hedge fund Y uses, I guess. And this was not a secret. Lots of people in the AI tech world knew about this, Angelo included, because the hedge fund had been sort of open sourcing what it was doing. After all, the parent company was not an AI company, it was a hedge fund.

[Mary Childs]

Right? So people generally knew that this AI model was likely more useful than just for hedge fundy things. But what seems to have happened was seems to really have rocked the stocks were a few key things.

[Kenny Malone]

Yeah, number one, the deep Seq AI had been training, getting better and better. And it seems that the newest version, released just 11 days ago, had got real good. It hit certain benchmarks that showed it was possibly allegedly as good or nearly as good as the gigantic fancy, expensive AI models being built by the American AI companies.

[Mary Childs]

Except, and here's the big thing number two, Deepseek is not a big fancy, expensive AI model. It was reportedly built for a fraction of the cost and reportedly did not need top of the line chips and semiconductors and processors to run like the models from the American AI companies need.

[Kenny Malone]

And then big thing number three, according to Angelo Zeno, news of all of this starts to spread. And over the weekend, last weekend, lots of people download a Deep Seek app, presumably to see what this buzzy new AI model is really like.

[Angelo Zeno]

Deep Seek topped the app store chart and kind of got ahead of OpenAI. I think it kind of, you know, put the technology right in the eye of the storm for investors out there.

[Mary Childs]

And then five hours after Angelo wakes up on Monday, markets open and wham o a bunch of stocks start plummeting.

[Kenny Malone]

I've been thinking about, like, should Monday have a name like Black Friday had a name, you know, and I've been trying to make this one work. Yeah, Monday I Apocalypse.

[Angelo Zeno]

It's not bad. It's not bad. Hey, you know.

[Kenny Malone]

And so we shall now dissect and make meaning of the Monday apocalypse, starting with Angelo's specialty, the tech sector.

[Mary Childs]

So which tech stocks had an awful Monday AI?

[Angelo Zeno]

So when you kind of look at some of the names that got hit the most, I mean, essentially chip makers that are heavily exposed to the data center market and you know, that would include Broadcom, Marvell Micron.

[Kenny Malone]

Is it Marvell? I've been saying Marvel this whole time. Nerd. Who reads comics? Okay, yeah. Whoops.

[Angelo Zeno]

So Marvell, specifically Nvidia was the one that got the most attention out there.

[Mary Childs]

Ah yes, Nvidia. Nvidia manufactures top of the line processors that have become the not very secret sauce that American made AI models need in order to do the unfathomably large amounts of computing required to train and run AI models. If AI is the gold, Nvidia is selling the picks and the shovels.

[Kenny Malone]

So for a lot of the people who were interested in investing in the brave new AI future, Nvidia seemed like a good place to do it. Especially because it has actually been quite hard to invest directly in the AI companies like some of the biggest companies developing the models. OpenAI anthropic. They do not have shares you can just go and buy. They're not publicly listed. Not yet at least.

[Mary Childs]

All of this is why Nvidia seemingly overnight has become one of the most valuable companies on the planet. In 2020 you could buy Nvidia's stock for like 6 bucks last week, 142 bucks.

[Kenny Malone]

That is like 23x growth basically because the only way the AI revolution can happen is with the fancy AI chips from Nvidia. In fact, Nvidia was seemingly so important that in 2022 the United States banned Nvidia's most powerful chips from being sent to China to preserve America's AI advantage for national security reasons.

[Mary Childs]

You could not overstate Nvidia's value and then enter Deepseek, this Chinese hedge fund apparently building a top of the line AI model even though they weren't allowed to build it on the very best AI chips from Nvidia because Chinese companies aren't allowed to buy them.

[Kenny Malone]

Which the markets seemed to think perhaps meant Nvidia was not quite as important to the AI revolution as they thought. And on Monday, Nvidia's stock price fell so much, nearly 20%, a near double.

[Mary Childs]

Decimation if you will. The company's value dropped by almost $600 billion, the single biggest one day drop in American history.

[Kenny Malone]

Now historically, had you been bullish on Nvidia, had you been telling these European investors like hey, go long Nvidia.

[Angelo Zeno]

So listen, we went bullish on Nvidia actually in March of 2020. Yes. We have continued to pound the table on Nvidia as recently as kind of a week or two ago. We do think they have the most important intellectual property probably in the world, right?

[Kenny Malone]

But if you were a week ago telling people bullish on Nvidia and then on Monday it plummets, how does that like, what's that like when you're in your chair.

[Angelo Zeno]

It doesn't look good and it's definitely not an easy conversation to have.

[Kenny Malone]

It is, however, a conversation that many investors needed to have with themselves on Monday. Because DeepSeq's prevalence suddenly did seem to undermine the core assumption that in order to build God tier AI, you needed God tier AI chips. But deepseek had apparently pulled it off with cheaper chips and fewer of them.

[Mary Childs]

Which the markets interpreted as not good for Nvidia and the other chip makers in their future.

[Kenny Malone]

As for Angelo, what did he tell his angry European investors and other investors during the Monday apocalypse?

[Angelo Zeno]

We didn't say sell your Nvidia shares. We continue to have a buy recommendation on the shares.

[Kenny Malone]

Okay, so you didn't change that through the the cliff.

[Angelo Zeno]

Right. Especially on that day. I mean, when the stock was down, I believe it was 18 or 19%. We did think that was an overreaction.

[Kenny Malone]

Because he says the AI revolution will still need lots and lots of processing power. Just, you know, whose chips and how many and what kind. Well, the markets seem a bit less sure about all of that than they were one week ago.

[Mary Childs]

For our next lesson learned from the Monday eye apocalypse, we turn to Jennifer Hiller of the Wall Street Journal.

[Kenny Malone]

I'm going to share my screen and I'm just going to. Okay, I'll explain in one second. Let me.

[Planet Money Host]

Okay.

[Mary Childs]

Jennifer's been reporting on the energy industry for over a decade.

[Kenny Malone]

I just want you to read a headline that you wrote from like about two weeks ago.

[Planet Money Host]

Yeah. Once unwanted Constellation Energy is one of the hottest stocks.

[Mary Childs]

Once unwanted Constellation Energy is one of the hottest stocks. It's a story about how investors were pouring money into America's biggest provider of nuclear power. The value had been shooting up and Constellation Energy hit an all time high stock price just last week.

[Kenny Malone]

Well, Jennifer, it seems you know what I'm going to do next, which is two weeks later, I'm just going to pull up a graph of their stock price.

[Planet Money Host]

It looks like it sort of fell off of a cliff and then bumped along the bottom and then dipped some more. Yeah, I'm obviously a big jinx. You don't want me to write a story about your all time high.

[Mary Childs]

But this was not Jennifer's fault. This was of course Deep Seek's fault.

[Kenny Malone]

Yes. Okay, so in case you have not heard this, the AI revolution is going to require a lot of energy. And this goes back to, to the market assumption. We just discussed about how training AI models and running them requires really high tech processors which use loads of electricity and then AI uses loads of those fancy processors using loads of electricity and they put them all together. And I guess in giant big buildings.

[Planet Money Host]

These, you know, really large data centers that are kind of often on the edge of town, great big buildings.

[Kenny Malone]

Should we imagine it like having the electrical meter outside and it's just spinning so fast you can't see the hand?

[Planet Money Host]

Like, like I like that idea. I don't know actually how they're metered, but it must be some very fancy version of that.

[Mary Childs]

Jennifer says that people have been talking about kneading and building like Manhattan's worth of new power supply, as in enough energy to power Manhattan three, four, seven times over.

[Kenny Malone]

And for reasons Jennifer says, some of the tech companies have become fixated on nuclear as a great option for the huge AI powered needs.

[Planet Money Host]

All of these big tech companies have climate commitments and climate targets that they've made.

[Mary Childs]

Yeah, nuclear works on that front. It is carbon emission free.

[Planet Money Host]

AI and data centers need power consistently all the time. 24 7.

[Kenny Malone]

Apparently that is how nuclear power works. Consistent energy 24 7. And sure, you know, it has a notorious track record, but I think tech.

[Planet Money Host]

People just also kind of like the technology of nuclear.

[Mary Childs]

Nuclear is the tech bro of power. That makes total sense to me, 100%.

[Kenny Malone]

But anyway, the point is that we have a similar story here to what we had with Nvidia and other chip makers. People wanted a way to invest in the AI future. And so they were pouring money into nuclear stocks, including of course our nation's biggest nuclear provider, Constellation Energy.

[Mary Childs]

Over the last three years, Constellation went from like 40 bucks a share to like $300 because the markets thought our AI future needs all the nuclear energy.

[Kenny Malone]

And then on Monday, because of Deep Seek, the markets were forced to perhaps rethink that assumption. You had this high quality AI apparently needing less energy. The market starts selling Constellation off of the cliff. And at one point on Monday, the stock was down 20%.

[Planet Money Host]

It's brought up this question of how much power does the AI industry really need?

[Kenny Malone]

Yeah. So that cliff you described, the stock price of Constellation dropping off, that is a market collectively saying, oh crap, maybe the future doesn't require as much electricity as I was betting on.

[Planet Money Host]

Right. I think it's pretty safe to say that there's a future where we're using a lot more electricity than we use now, but are we using it at this, you know, extremely higher level?

[Kenny Malone]

And to be clear, nuclear power has been getting lots of headlines, but the, the markets had also been pouring into really like any company that makes and sells any kind of electricity.

[Mary Childs]

And those companies, they got hit on Monday too, including a company called the Texas Pacific Land Corporation, which is basically just giant chunks of land in Texas that have oil and natural gas. Even that got whacked by the Deep Seq news on Monday.

[Planet Money Host]

So, yeah, that shows you like how, how the tentacles of this stretch out.

[Kenny Malone]

The Monday apocalypse was, was not about whether or not there will be an AI revolution. If anything, the introduction of Deep Seek means more AI, lowering the barrier to AI, making it cheaper to use for, I don't know, whatever your AI mind.

[Mary Childs]

Can dream up all your great ideas. There you go, getting into it. And there are two categories that you'll see companies sorted into AI enablers and AI adopters. Enablers are the companies that are basically the supply chain to make AI models. Chip makers, power companies, the AI model companies themselves, and then the AI adopters.

[Kenny Malone]

Those are all the companies that stand to benefit from using AI. And really what this week was about was like a shift away from the enablers and arguably a bit towards the adopters.

[Mary Childs]

Yeah, the shift away from the chip makers and the energy companies was dramatic. You have to look a little bit harder, squint a little bit to see the market moves towards the adopters. But one example, people point towards Salesforce. They have basically made their whole thing, their identity, adopting and using AI. And on Monday, their stock was up 4%.

[Kenny Malone]

And I think there is one other huge assumption that was challenged this week. Up until Monday, the market seemed to be confident that American AI companies had a moat around this technology, that the barriers to entry were just so enormous that no one else was going to win this arms race.

[Mary Childs]

But that moat, that was maybe the biggest assumption that the markets were scrambling to rethink on Monday. Because if a Chinese hedge fund that doesn't even make AI for a living was able to make Deep SEQ as cheaply as they say, using fewer and less fancy processors. And if it's even close to as good as these American AI models, yeah, that probably does change everything.

[Kenny Malone]

After the break, we sit down with someone actively trying to build DeepSeek from scratch to see how much of all of this is real and did the world really change? On Monday.

[Sponsor Message]

Support for NPR and the following message come from Betterment, the automated investing and savings app. CEO Sarah Levy shares how Betterment utilizes tech tools powered by human advice.

[Kenny Malone]

Betterment is here to help customers build wealth their way. And we provide powerful technology and complete human support where technology can deliver ease of use and affordability. And the people behind that technology can provide advice and guidance.

[Sponsor Message]

Learn [e-mail] investing involves risk performance not guaranteed.

[Russell Price]

This message comes from Intuit why is Intuit Enterprise Suite a better solution for growing businesses? It provides powerful financial management and accounting capabilities integrated with payments processing, payroll, hr, marketing, third party apps, and more. Through powerful automation and insights, it helps you manage one or more businesses in one place. Visit intuit.com enterprise to learn more. Money Movement Services by Intuit Payments, Inc. Licensed by NYDFS this message comes from CarMax boldly searching for your next use vehicle. With CarMax, you don't have to settle on anything when it comes to your ride. Instead, steer clear of the ordinary and buy the car that's right for you. Because CarMax makes it easy to stop settling and find a car you'll love today. Start shopping [e-mail] CarMax the way car.

[Mary Childs]

Buying should be There is a company called Hugging Face. Their logo is like that smiley face emoji that's also giving you a hug with those two big emoji hands. Hugging Face.

[Kenny Malone]

You know, I can see that it is a very cute logo, but it is a kind of AI company where Leandro von Werra works, and he describes the basic business model this way.

[Leandro von Werra]

So you can imagine it a little bit like GitHub, if you're familiar with GitHub, where people share code and everything's.

[Kenny Malone]

Free, but there's an enterprise edition that costs money and that's how they make money. But like, the point is Hugging Face, cute logo, like an AI sharing platform. They do not build gigantic proprietary AI models to compete with OpenAI or anthropic or Google or whatever.

[Mary Childs]

And the reason we got in touch with Leandro is that he heads up their research team.

[Leandro von Werra]

So our job is not to make money. Our job is mostly to spend money, to spend money and build things that are very useful.

[Kenny Malone]

And what's been useful lately is Deep Seek or, you know, playing around with deepseek's new chatbot that partially freaked the markets out about the future of AI.

[Mary Childs]

Because there are really two reasons why the market freaked out. First, that it was made in a way that was cheaper and more efficient than how things like ChatGPT were made. And the other reason was that Deep Seek's model was allegedly really good. So the big question hovering over this entire week has been is all of that real and true or were markets overreacting?

[Kenny Malone]

So let's take these one by one. Is Deep Seek actually as good as the fancy American AIs? Well, Landros says we have ways to test this. There are these standardized tests, benchmarks for AI models. They used to be pretty simple math problems or whatever, but as the models have been trained more and more and have gotten better and better, we've upped.

[Leandro von Werra]

The exams a little bit. So now we're closer to PhD level exams, and we can measure quite well. Like, how many of the questions does a model get right?

[Kenny Malone]

So is deep seq passing PhD level coding, PhD level math.

[Leandro von Werra]

Yeah. So those models are getting, like, really good at solving certain kinds of questions. So, for example, these models can solve some of. For example, Math Olympiad questions.

[Mary Childs]

And here I will just interject to note, we do have on staff one person who has a math degree, and it's Kenny.

[Kenny Malone]

True. Not an Olympiad. But I was excited, quickly downloaded some Math Olympiad questions, pulled them up on my screen for Leandro.

[Mary Childs]

This is such a big day for you.

[Planet Money Host]

I feel like.

[Mary Childs]

Oh, yeah, this never gets to happen the first.

[Kenny Malone]

All right, hold on. Show that for each N, we can find an N digit number with all its digits odd, which is divisible by 5 to the nth power. Yeah, Deep Seek can do that sometimes. I mean, I can only sometimes do that.

[Angelo Zeno]

So.

[Kenny Malone]

Yeah, all right, fair enough.

[Leandro von Werra]

Exactly. I also. I'm like a physicist by training, and it takes exercise to be good at those questions.

[Kenny Malone]

Yeah. Okay, so that's what we're talking about here, huh?

[Leandro von Werra]

Yeah. Capability wise, we don't see any benchmarks that show that they have, like, some gaps in the knowledge.

[Kenny Malone]

Yeah. No apparent gaps between how deep SEQ's model performs and how the other models perform.

[Mary Childs]

Leandro has also checked to make sure Deep Seq is getting its exam answers legitimately.

[Leandro von Werra]

So we test these models on kind of exams. If those exams are already in the training data, naturally the models are much better.

[Kenny Malone]

Okay, so this is the classic. Are they teaching to the test? Like, that's exactly. Yeah.

[Leandro von Werra]

Yeah. And we haven't seen any indication of that either.

[Mary Childs]

From what he's seeing, Deepseek does seem to be in the same tier as the fancy American AI models.

[Kenny Malone]

So. Okay, appears to be good. That answers everybody's first question about deepseek, whether it was playing at the same level as other big AI models. But the second question is, do we really think that this thing is more efficient in some way?

[Mary Childs]

And to test that Leandro and his team are, in fact, attempting to build this themselves, basically from scratch, to replicate it.

[Kenny Malone]

When you sit down to, like, replicate Deep Seek, I don't even know, like, what do you do? You sit down and you open up a computer and you're like, all right, crack your fingers, open up a Microsoft Word document. You're like, deep seq v deep 2. Let's go.

[Leandro von Werra]

Yeah, I mean, that's pretty much what we did.

[Mary Childs]

So now, the reason this is even possible is because, unlike a lot of the recent American AI models, DeepSeek has been pretty open about their methods. They actually put out a big report that was kind of a set of instructions for how the model was built.

[Leandro von Werra]

So we not like reverse engineering in the dark. We are actually more like following their recipe and translating their paper to code. And I think we're making good progress. So I think in a few weeks at the latest, we're going to have a pipeline that works that people can use, and we're going to see if we get the same numbers.

[Mary Childs]

Yeah. So those numbers again, Deepseek's latest version was reportedly much cheaper to train and much cheaper to run than the big American models.

[Kenny Malone]

Are the claims that have been made about Deepseek, the cheapness, the fact that it can run on less powerful processors, do all of these things seem to be checking out?

[Leandro von Werra]

Yeah. So I think that's something that we want to investigate a bit. So far, it seems like napkin calculation. It's probably the right order of magnitude.

[Sponsor Message]

Yeah.

[Kenny Malone]

In the ballpark. Which is notable because there had kind of been some murmurs of skepticism around the specific numbers Deepseek was putting out.

[Mary Childs]

But Leandro is pretty convinced so far. It really is way cheaper than the existing American models for basically the same thing.

[Leandro von Werra]

And I think one thing that people underappreciate is an open model is kind of a leveling levels the whole field, because everybody has access to the same level of knowledge, so everybody can immediately build. On top of that, I've heard people.

[Kenny Malone]

Talk about this moment as a shift towards AI models as a commodity. And that is a completely different vision than what markets seem to be betting on before this week. Like, seemingly overnight, we went from an imagined future where a handful of gigantic American companies controlled the most powerful AI models, to a future where it seems very powerful AI models can be built and used by maybe anyone, anywhere, someday.

[Mary Childs]

That is a lot to process in one week. In just a few days, the markets for their parts have moved ever so slightly back towards where they were before Monday. Still shocked, but, you know, Nvidia's still one of the most valuable companies in the world.

[Kenny Malone]

Yeah. Investors are, of course, still betting on a version of the AI revolution, which, of course, will be excitedly televised if you want to nerd out more on what an AI future might look like. You can subscribe to our newsletter. Newsletter author Greg Rosalski is working on a piece about why the AI community is suddenly obsessed with a 160-year-old paradox. Jevons paradox. He's got the history of that idea and the latest AI ideas. [e-mail] Planet Money Newsletter this episode was.

[Mary Childs]

Produced by Willa Rubin with an assist from James Sneed. It was edited by Keith Romer and engineered by Neil Tivolt. Research help from Sierra Juarez.

[Kenny Malone]

Special thanks this week to Haim Israel from Bank of America. I'm Kenny Malone.

[Mary Childs]

And I'm Mary Childs. This is npr. Thanks for listening.

[Sponsor Message]

This message comes from Capital One. Banking with Capital One helps you keep more money in your wallet with no fees or minimums on checking accounts. What's in your wallet? Terms apply. See capitalone.combank for details. Capital One NA Member FDIC this message comes from Warby Parker. What makes a great pair of glasses at Warby Parker? It's all the invisible extras without the extra cost, like free adjustments for life. Find your [e-mail] or visit one of their hundreds of stores around the country. This message comes from Warby Parker. What makes a great pair of glasses at Warby Parker? It's all the invisible extras without the extra cost, like free adjustments for life. Find your [e-mail] or visit one of their hundreds of stores around the country.