From SemiAnalysis, January 31:
The DeepSeek Narrative Takes the World by Storm
DeepSeek took the world by storm. For the last week, DeepSeek has been the only topic that anyone in the world wants to talk about. As it currently stands, DeepSeek daily traffic is now much higher than Claude, Perplexity, and even Gemini.
But to close watchers of the space, this is not exactly “new” news. We have been talking about DeepSeek for months (each link is an example). The company is not new, but the obsessive hype is. SemiAnalysis has long maintained that DeepSeek is extremely talented and the broader public in the United States has not cared. When the world finally paid attention, it did so in an obsessive hype that doesn’t reflect reality.
We want to highlight that the narrative has flipped from last month, when scaling laws were broken, we dispelled this myth, now algorithmic improvement is too fast and this too is somehow bad for Nvidia and GPUs.
The narrative now is that DeepSeek is so efficient that we don’t need more compute, and everything has now massive overcapacity because of the model changes. While Jevons paradox too is overhyped, Jevons is closer to reality, the models have already induced demand with tangible effects to H100 and H200 pricing.
DeepSeek and High-Flyer
High-Flyer is a Chinese Hedge fund and early adopters for using AI in their trading algorithms. They realized early the potential of AI in areas outside of finance as well as the critical insight of scaling. They have been continuously increasing their supply of GPUs as a result. After experimentation with models with clusters of thousands of GPUs, High Flyer made an investment in 10,000 A100 GPUs in 2021 before any export restrictions. That paid off. As High-Flyer improved, they realized that it was time to spin off “DeepSeek” in May 2023 with the goal of pursuing further AI capabilities with more focus. High-Flyer self funded the company as outside investors had little interest in AI at the time, with the lack of a business model being the main concern. High-Flyer and DeepSeek today often share resources, both human and computational.
DeepSeek now has grown into a serious, concerted effort and are by no means a “side project” as many in the media claim. We are confident that their GPU investments account for more than $500M US dollars, even after considering export controls.
Source: SemiAnalysis, Lennart Heim
The GPU Situation
We believe they have access to around 50,000 Hopper GPUs, which is not the same as 50,000 H100, as some have claimed. There are different variations of the H100 that Nvidia made in compliance to different regulations (H800, H20), with only the H20 being currently available to Chinese model providers today. Note that H800s have the same computational power as H100s, but lower network bandwidth.
We believe DeepSeek has access to around 10,000 of these H800s and about 10,000 H100s. Furthermore they have orders for many more H20’s, with Nvidia having produced over 1 million of the China specific GPU in the last 9 months. These GPUs are shared between High-Flyer and DeepSeek and geographically distributed to an extent. They are used for trading, inference, training, and research. For more specific detailed analysis, please refer to our Accelerator Model.
Source: SemiAnalysis
Our analysis shows that the total server CapEx for DeepSeek is ~$1.6B, with a considerable cost of $944M associated with operating such clusters. Similarly, all AI Labs and Hyperscalers have many more GPUs for various tasks including research and training then they they commit to an individual training run due to centralization of resources being a challenge. X.AI is unique as an AI lab with all their GPUs in 1 location....
....MUCH MORE
