News DeepSeek’s low-cost chatbot has shaken markets.
The tech industry and stock markets have been trying to grasp how a small, relatively unknown Chinese company was able to develop a sophisticated artificial intelligence chatbot on par with OpenAI’s ChatGPT at a fraction of the cost.
One possible answer being floated in tech circles is distillation, an AI training method that uses bigger “teacher” models to train smaller but faster-operating “student” models.
DeepSeek claims to have achieved a similar level of performance as OpenAI’s o1 model at a fraction of the cost through “optimized codesign of algorithms, frameworks, and hardware.”
This sparked a sharp selloff in tech shares as investors considered whether the Chinese company’s low-budget approach signaled the end of the AI investment race and the dominance of US tech giants.
But questions soon arose, with some in the industry speculating that the company had piggybacked on OpenAI’s developments.
Such speculation was fueled when Bloomberg reported that Microsoft and OpenAI had launched a probe into whether DeepSeek improperly obtained data from OpenAI to train its own model. OpenAI told the Financial Times on January 28 that it has seen evidence of distillation, though it did not make that evidence public.
Microsoft and DeepSeek did not immediately respond to Nikkei Asia’s request for comment.
Distillation itself is not a new technique and is not necessarily controversial. Nvidia’s Minitron and Falcon 3, which was developed by the Technology Innovation Institute in the UAE, both used the technique, likely using their own families of large language models (LLMs) as the teacher. It has become increasingly popular since 2024 amid demand from businesses wanting to utilize LLMs in their services.Big LLM models, however, are “difficult to handle, and you would need a vast number of graphics processing units (GPUs) for its deployment,” said an engineer at an AI startup in Japan.GPUs are the main reason AI systems are so expensive. Nvidia’s signature H100 chips, for example, can cost USD 30,000–35,000 each. Distillation drastically cuts development time and costs, and results in models that can operate faster than their bigger counterparts.The issue for DeepSeek is whether its low-cost model […]
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