DeepSeek, the Chinese artificial intelligence startup that has taken the tech world by storm with its cutting-edge open-source models, is reportedly on the verge of closing its first-ever external funding round at a staggering valuation of $45 billion (£33 billion). According to the Financial Times, the China Integrated Circuit Industry Investment Fund—commonly known as the “Big Fund”—is in advanced talks to lead the round, with Tencent Holdings and Alibaba Group also expressing interest in participating. This valuation marks a dramatic leap from the $10 billion minimum the company sought when it began fundraising just a few weeks ago, and represents a meteoric rise even in the fast-paced world of AI startups.
The Big Fund’s Strategic Bet
The Big Fund, China’s largest state-backed semiconductor investment vehicle, has historically focused on hardware—backing industry giants like Semiconductor Manufacturing International Corporation (SMIC) and YMTC, the country’s leading memory chip maker. Its pivot to investing in an AI software company signals a strategic shift in Beijing’s vision for technological self-reliance. By injecting capital into DeepSeek, the Chinese government hopes to foster an integrated ecosystem where advanced hardware and frontier AI models work in tandem—reducing dependence on foreign technology, especially from the United States.
From Open-Source Pioneer to Unicorn
Founded by Liang Wenfeng, DeepSeek quickly garnered global attention for its open-source AI models that rival the performance of proprietary systems from OpenAI and Google. The company’s philosophy of sharing its breakthroughs has earned it a loyal following among developers and researchers. However, unlike some Chinese competitors such as Moonshot and Zhipu—the latter of which is valued at around $52 billion—DeepSeek has focused primarily on developing frontier models rather than pursuing broad commercialisation. This approach has not deterred investors, who are betting that DeepSeek’s technical prowess will eventually translate into massive market share as China accelerates its AI adoption.
Rising Valuations and Investor Appetite
The funding round initially targeted a valuation of $10 billion, but as talks progressed, the figure quickly escalated. By late April, sources had reported a $20 billion valuation, and now the number has more than doubled to $45 billion. This dramatic increase reflects the intense investor appetite for AI assets in China, where the government is actively encouraging domestic tech giants to collaborate rather than compete. Tencent and Alibaba, two of the largest tech firms in the country, are reportedly in talks to join the round, though their specific contributions have not been disclosed. The involvement of these industry heavyweights is seen as a vote of confidence in DeepSeek’s technology and its potential to become a cornerstone of China’s AI infrastructure.
Huawei Optimisation: A Boost for Tech Independence
DeepSeek recently announced that its latest V4 model has been optimised to run inference on Huawei’s Ascend 950PR chips. This is a significant development for China’s tech independence efforts. Huawei has overtaken Nvidia in the domestic chip market, largely because Nvidia’s advanced products remain restricted in China due to US export controls and Chinese regulatory barriers. By tailoring its models to run on domestic hardware, DeepSeek is not only strengthening its own supply chain resilience but also providing a powerful use case for Huawei’s chips, potentially accelerating their adoption across the AI industry. The optimisation also positions DeepSeek as a key player in the government’s push for a fully indigenous AI stack—from chips to algorithms to applications.
Context: China’s AI Ecosystem Under Pressure
China’s AI sector has been under intense pressure since the US began tightening export controls on advanced semiconductors and chip-making equipment. The restrictions, which were expanded in 2023 and 2024, have made it difficult for Chinese companies to access Nvidia’s top-tier GPUs, such as the H100 and B200. In response, the Chinese government has poured billions into domestic chip development and urged tech firms to collaborate on building a unified AI ecosystem. DeepSeek’s funding round, led by the Big Fund, is a direct manifestation of this strategy. The company’s success in achieving high-performance AI with relatively less powerful hardware—by optimising for Huawei chips—could serve as a blueprint for other Chinese firms seeking to overcome the US chip blockade.
Comparing DeepSeek with Competitors
DeepSeek’s focus on frontier models sets it apart from other Chinese AI startups that have pursued rapid commercialisation. Zhipu, for example, has built a broad portfolio of enterprise AI services and raised substantial funding from state-backed investors, reaching a valuation of approximately $52 billion. Moonshot, another prominent player, has developed consumer-facing AI chatbots and secured partnerships with major internet companies. DeepSeek, by contrast, has chosen to remain more research-oriented, releasing state-of-the-art models like DeepSeek-R1 and V4 under open-source licences. This strategy has earned DeepSeek widespread acclaim in the academic community but has also raised questions about its revenue model. The participation of the Big Fund and tech giants like Tencent and Alibaba suggests that investors are willing to wait for long-term returns, believing that DeepSeek’s technology will eventually underpin a new generation of Chinese AI applications.
The Road Ahead: Integration with State Goals
The Chinese government has made AI leadership a national priority, and DeepSeek is now at the centre of that ambition. The Big Fund’s investment is not just about financial returns; it is a strategic move to ensure that China has homegrown AI capabilities that can compete with the US on a global scale. DeepSeek’s ability to develop highly capable models that run efficiently on domestic chips could give China a critical advantage in areas such as autonomous systems, healthcare diagnostics, and large-scale data processing. Moreover, by fostering collaboration between DeepSeek, Huawei, and other ecosystem players, Beijing hopes to create a virtuous cycle where improved hardware enables better AI models, which in turn drive demand for more advanced chips.
International Implications
The rapid ascent of DeepSeek has not gone unnoticed overseas. US policymakers and industry leaders have expressed concern that Chinese AI startups, despite facing hardware restrictions, are making impressive strides. DeepSeek’s open-source models have been downloaded millions of times globally, and their performance on standard benchmarks has sometimes matched or exceeded that of American counterparts. If DeepSeek secures $45 billion in funding, it would have substantial resources to recruit top talent, expand its computing infrastructure, and accelerate research. This could intensify the already fierce competition between the US and China in artificial intelligence, potentially leading to further export controls or additional investment restrictions.
Market Dynamics and the Role of Tencent and Alibaba
Tencent and Alibaba have been actively investing in AI startups as part of their broader cloud and enterprise strategies. Tencent, with its massive social media and gaming ecosystem, sees AI as a way to enhance user engagement and automate content creation. Alibaba, through its cloud computing division, is positioning itself as a leading provider of AI infrastructure in Asia. Both companies would benefit from having a close relationship with DeepSeek, potentially integrating its models into their platforms or offering them to their enterprise customers. Their participation in the funding round also signals a shift away from internal development and toward partnership with external innovators—a trend that mirrors similar moves by US tech giants like Microsoft and Google.
Technical Breakthroughs: DeepSeek V4 and Beyond
DeepSeek’s V4 model represents a significant leap in efficiency and performance. While the company has not disclosed full technical details, it claims that the model achieves inference speeds comparable to those of Nvidia’s A100 when running on Huawei’s Ascend 950PR chips. This is achieved through a combination of custom kernel optimisations, model parallelism, and algorithmic innovations that reduce memory bandwidth requirements. The ability to run advanced AI workloads on domestic hardware is a major achievement for China’s tech ecosystem, which has long struggled to match the performance of Western chip designs. DeepSeek’s success could encourage other Chinese AI labs to follow suit, creating a robust domestic supply chain for AI computing.
Challenges and Risks
Despite the promising outlook, DeepSeek faces several challenges. The company’s lack of a clear commercialisation strategy may become a liability if investor patience wears thin. Additionally, the US government could impose further restrictions that limit Chinese access to advanced chip design tools or software libraries. DeepSeek also operates in a regulatory environment that is increasingly concerned with AI safety and content control, which could affect the deployment of its models. Finally, competition from other Chinese AI firms, as well as from international players, will remain intense. However, the backing of the Big Fund and the willingness of Tencent and Alibaba to join the round suggest that DeepSeek has powerful allies who are committed to its long-term success.
Huawei’s Ascend Ecosystem and Market Share
Huawei has been aggressively promoting its Ascend series of AI chips as an alternative to Nvidia’s GPUs. The Ascend 950PR, launched in 2024, is designed for high-performance inference and is now widely used in Chinese data centres. DeepSeek’s optimisation for this chip is a critical endorsement, as it demonstrates that a world-class AI model can run efficiently on Huawei hardware. This is likely to boost Huawei’s market share further, especially in sectors where data sovereignty is important. As more Chinese companies adopt Ascend chips, the ecosystem around them will mature, potentially reducing the performance gap with Nvidia’s offerings. Huawei has already overtaken Nvidia in the Chinese AI chip market, according to industry reports, and DeepSeek’s partnership could solidify that lead.
Conclusion of Factual Analysis (No Formal Conclusion)
DeepSeek’s valuation surge to $45 billion in its first funding round is a testament to the company’s technological achievements and the strategic importance of AI in China. The involvement of the Big Fund, Tencent, and Alibaba underscores a coordinated effort to build a self-sufficient AI ecosystem. The optimisation of the V4 model for Huawei’s Ascend chips marks a major milestone in China’s drive for tech independence, reducing reliance on foreign hardware. As the US-China technology rivalry intensifies, DeepSeek is poised to become a central player in the global AI landscape, wielding significant influence over the future direction of both software and hardware development.
Source: Silicon UK News