In the past two weeks, the global AI playground has completely changed, and some are saying that this is the long-awaited bursting of the AI bubble. I have a brief summary of all you need to know and why I don’t think the DeepSeek burst the AI bubble quite yet.
Trump’s Stargate Project
On January 21st, Donald Trump announced the Stargate Project. Named after the 1994 movie Stargate, it’s supposed to symbolize a wormhole into an ancient pyramid. I guess. It’s not a governmental project, but an umbrella for private investors to pour money into AI.
The investors currently include OpenAI, SoftBank, Oracle, and an Abu Dhabi-based investment fund MGX. The initial investment is $100 billion, and by 2029 it’s supposed to reach $500 billion; at least that’s the plan.
China’s Deepseek: The Rise of Open-Source AI Models
Elon Musk promptly rained on Trump’s parade and claimed that they don’t actually have even the 100 billion dollars. Just two days later, the Chinese firm Deepseek released another open-source AI model called r-1, a reasoning model similar to GPT-4o, and briefly afterwards an image generation model called Janus Pro.
Neither is the absolute best in its category, but among the best. This made it clear that China is not behind on AI, and if we factor in the possibility that they’re not telling us the whole story, maybe China is actually ahead of the rest of the world.
Also Read– DeepSeek R1 blog: This Free AI Model is Mind-Blowing
1. Introduction to DeepSeek
DeepSeek is a Chinese artificial intelligence company that develops open-source large language models (LLMs). It is owned and funded by Chinese hedge fund High-Flyer, whose co-founder, Liang Wenfeng, established the company in 2023 and serves as its CEO.
Impact of DeepSeek in USA
On 10 January 2025, DeepSeek released its first free chatbot app, based on the DeepSeek-R1 model, for iOS and Android; by 27 January, DeepSeek-R1 had surpassed ChatGPT as the most-downloaded free app on the iOS App Store in the United States, causing Nvidia’s share price to drop by 18%.
2. What is AI Bubble?
The AI bubble is a phenomenon where there is excessive hype, overvaluation, or inflated expectations of AI technologies and companies, leading to investments that may not be sustainable in the long run.
Just like other bubbles in financial markets, such as the dot-com bubble of the late 1990s or the housing bubble of 2007-2008.
The AI bubble involves speculators and investors injecting money into AI startups, tools, and technologies with inflated hopes of huge profits or breakthroughs, even if the actual technologies or business models may not be ready to deliver on those promises.
The AI Bubble Bursts: Stock Market’s Reaction:
Naturally, such a stark confrontation with reality made waves. Investors, tech enthusiasts, and analysts scrambled to reassess their positions. Was AI truly ready for the massive transformations promised just a few years ago, or had the market been too quick to chase the next shiny object?
The market, in part, reacted by pulling back. AI-related stocks and investments took a hit, and many companies began to temper their promises. This wasn’t just about DeepSeek, of course—other companies in the space also faced tough questions. But DeepSeek’s visibility, combined with its relentless push to expose the real challenges of AI, served as the symbol of a changing narrative.
Some might argue that this was an overdue reality check. After all, the hype surrounding AI had gone far beyond the tech itself. The deep-learning models, algorithms, and investments often didn’t match the substantial ROI that investors were promised. DeepSeek’s more cautious and grounded approach was seen as a breath of fresh air—one that could reframe AI into something more realistic and achievable.
3. Did DeepSeek burst the AI bubble?
The question on many minds is whether DeepSeek’s influence on the AI industry burst the AI bubble or merely acted as a transition for a much-needed refocusing. The AI bubble was doomed; everyone always knew that. The overoptimistic expectations regarding a breakthrough-near-technology in the future could not be forever sustained.
DeepSeek was never put in the picture with the aim of killing the optimism of the industry; it was introduced alongside to ground itself. By exposing the practical limitations and encouraging the industry to focus on more attainable, sustainable goals, DeepSeek diverted the conversation. Maybe what we see is not a dying-off of deep learning growth: perhaps the emergence of a counterbalancing hand to real-world technologies against fantastical promises rather than something else.
When will the AI bubble burst?
It will burst when it becomes clear that the current AIs, which are a specific type known as large language models, will never become profitable. As we discussed previously, some experts, including Yann LeCun and Gary Marcus, doubt that large language models will ever get us to general intelligence, and I agree with them.
The market will only react to this once it becomes clear that the existing LLMs can’t be recovered with further updates. At that point, a lot of money will evaporate like this. But at the moment, the Stargate project is just pumping more money into an existing bubble.
Building power plants, extending the grid, and improving data infrastructure generally seems like a good idea, and all these are part of the Stargate project. But to me, the Stargate Project is as crazy as if Americans had taken the first semiconductors and spent $500 billion on factories to produce them, rather than letting markets do their thing and wait for technological developments to make microchips smaller and cheaper to wait for them to make economic sense.
4. The European Approach on Deepseek AI
The European approach, which is basically to wait and see what goes wrong in America. I’m not usually a fan of the European risk-aversity. But in this case, “wait and see” might indeed work out to our advantage. And if not, we’ll always be here to give Americans lectures about responsibility, sustainability, and how our regulation-heavy bureaucracy prevents us from having fun.
- The European Risk-Aversity: While Europe is often criticized for being too risk-averse, this cautious approach might work out well in the long run as it avoids unnecessary financial bubbles.
- The Irony: If AI development doesn’t pan out as expected in the U.S., Europe will be ready to step in with lessons on responsibility, sustainability, and regulation.
5. DeepSeek’s impact on the future of AI?
DeepSeek’s footprint on the AI market may not necessarily mean the end of all excitement in the field, but it surely suggests that we are stepping into a new paradigm. We can probably foresee that applied AI—examples that address real-life challenges—would become the norm, rather than speculation on technologies built on unrealistic timelines.
This down-to-earth approach may also guarantee that the growth of AI in sectors such as healthcare, finance, education, and logistics becomes steady and sustainable.
For startups, investors, and corporate interests wanting to step into AI, the simple lesson to be learned is that the world does not stand still for another great miracle of AI. Instead, it is hungry for sustainable innovations that can realistically make a difference.
DeepSeek’s effect, then, may not be about bursting the bubble but just recalibrating the expectation as to what AI could—and could not—actually do.
- Democratization of AI: By offering an open-source model, DeepSeek has lowered the barriers to entry for AI development, enabling a broader range of organizations and individuals to contribute to and benefit from AI advancements.
- Investment Reevaluation: Investors may need to reassess their strategies, shifting focus from companies with massive capital expenditures to those that prioritize efficiency and innovation. This could lead to a more diversified investment landscape within the tech sector.
- Geopolitical Dynamics: The success of DeepSeek highlights the shifting balance of technological power, with China emerging as a formidable player in the AI domain. This development may prompt other nations to intensify their AI research and development efforts to maintain competitiveness.
Conclusion
While it may be premature to declare that DeepSeek has definitively burst the AI bubble, its emergence has undoubtedly disrupted the status quo, challenging existing paradigms and prompting a reevaluation of assumptions within the industry.
People Also Ask
Most Asked Questions About “Did DeepSeek Burst the AI Bubble?”
What is DeepSeek?
DeepSeek is a Chinese AI company that released an open-source model rivaling OpenAI’s ChatGPT.
Why is DeepSeek significant?
It demonstrated that high-performing AI models could be developed at a fraction of the cost and resources previously thought necessary.
Did DeepSeek cause a market crash?
Yes, its launch contributed to a $1 trillion market selloff, impacting AI and semiconductor stocks like Nvidia, Microsoft, and Alphabet.
How does DeepSeek compare to ChatGPT?
Benchmark tests suggest it performs similarly in answering questions, logic problems, and coding.
Why do people say DeepSeek burst the AI bubble?
It challenged the notion that only U.S. tech giants could develop leading AI models, shaking investor confidence.
What makes DeepSeek different?
It required only about 2,000 GPUs for training, making AI development more cost-effective.
Is DeepSeek open-source?
Yes, unlike many proprietary models, DeepSeek has been made open-source, democratizing access to AI technology.
How did industry leaders react?
Microsoft and OpenAI executives praised it, while Elon Musk and the U.S. Navy raised concerns.
What is the ‘Sputnik moment’ in AI?
Some experts compare DeepSeek’s impact to the Soviet Union’s launch of Sputnik, signaling a shift in technological dominance.
Does this mean China is leading in AI?
Not necessarily, but DeepSeek’s success highlights China’s growing AI capabilities.
What does this mean for AI investment?
Investors may shift focus from large-scale AI infrastructure to more efficient, cost-effective models.
Is DeepSeek a security concern?
Some U.S. officials and institutions have raised concerns, leading to bans in certain sectors.
Will DeepSeek replace ChatGPT?
It’s too early to tell, but its open-source approach could attract significant adoption.
What’s next for DeepSeek?
Its future depends on adoption, continued innovation, and geopolitical factors influencing AI development.
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