TMTPOST -- Chinese startup DeepSeek is considering whether to raise outside capital for the first time to meet booming demand for its free artificial intelligence (AI) service as its highly cost-effective models upend the U.S. AI dominance.

Credit：China Central Television

DeepSeek, which has not raised any outside funding since its establishment in 2023, is weighing outside fundraising due to the need for more AI chips and servers to deal with fast-growing usage and support model development, The Information quoted people with knowledge of the matter on Wednesday. The research group under Chinese quant hedge fund High-Flyer is also considering using data centers in Southeast Asia to expand its access to Nvidia Corporation’s AI chips.

Many investors including Alibaba Group and Chinese state funds like China Investment Corp., the country’s sovereign wealth fund, and the National Social Security Fund, have expressed their interests in financing DeepSeek, according to the report.

The report said executives at DeepSeek and its parent High-Flyer are talking about whether focus of the Chinese AI firm should pivot from research to building a business generates revenue and eventually profit. The report suggested part of the reason that DeepSeek is reluctant to raise money from outsiders is it wants to avoid pressure from investors to commercialize its products too quickly. It noted DeepSeek founder and CEO Liang Wenfeng is still cautious about outside fundraising.

Earlier this month, Alibaba was said to plan $1 billion worth of investment in DeepSeek for 10% stake in the startup. But the Alibaba insider soon denied the report, calling it “fake news”. Some people in the industry believe that as computing power continues to be in short supply, it is time for DeepSeek to seek the outside funding since the firm is one of a few large model developers that has not yet initiated its first funding round and is delivering leading models comparable to OpenAI’s at a lower cost.

DeepSeek brought a frenzy to Wall Street, Silicon Valley and Washington late January. DeepSeek’s popular chatbot service app powered by its AI models jumped to the No.1 spot in app stores on January 27, dethroning OpenAI’s ChatGPT as the most downloaded free app in U.S. on Apple Inc.'s App Store, and has maintained its lead since. DeepSeek also topped the global Apple App Store download charts the same day and held the No.1 position since, according to Appfigures data that excludes third-party app stores in China. DeepSeek app was downloaded 16 million times in its first 18 days, surpassing the 9 million downloads recorded by OpenAI's ChatGPT app in the same timeframe, data from Sensor Tower shows. DeepSeek's AI assistant is also the leading free download in Google's App Store, a position it has held since January 28.

DeepSeek’s power implications for AI training punctures some of the capex euphoria which followed major commitments from Stargate and meta in January, commented brokerage firm Jefferies. Given DeepSeek’s performance comparable to GPT-4o for a fraction of the computing power, Jefferies there are potential negative implications for the builders, as pressure on AI players to justify ever increasing capex plans could ultimately lead to a lower trajectory for data center revenue and profit growth.

Another Wall Street firm Nomura believes DeepSeek’s effectiveness for training LLMs may lead to concerns for reduced hardware demand, while the market may become more anxious about the return on large AI investment, if there are no meaningful revenue streams in the near- term.

However, Citigroup questioned the notion that DeepSeek’s achievements were done without the use of advanced GPUs to fine tune it and/or build the underlying LLMs the final model is based on through the Distillation technique. Citi doesn’t expect leading AI companies would move away from more advanced GPUs which provide more attractive $/TFLOPs at scale.