Understanding DeepSeek & What It Means for GovCons

The Emergence of DeepSeek 

DeepSeek, a Chinese artificial intelligence startup founded in 2023 and backed by hedge fund High-Flyer, has rapidly disrupted the global AI industry in early 2025. Their large language model, R1, has sparked significant debate in both technology and government circles regarding U.S. competitiveness, data security, and market stability.

DeepSeek’s R1 model boasts comparable performance to top U.S.-based AI systems like OpenAI’s GPT-series but at a fraction of the development cost (approximately $5.6 million versus the hundreds of millions traditionally required). By January 27, 2025, DeepSeek’s application surpassed ChatGPT to become the most downloaded app in the U.S., demonstrating its ability to outpace competitors. This moment has been labeled by some industry leaders, such as Marc Andreessen, as AI’s “Sputnik moment.”

We’ve collected the key moments from the recent commotion around DeepSeek and identified its potential impacts for government contractors.

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Timeline of Key Events

• January 22, 2025 

DeepSeek publicly unveils R1, positioning it as a viable competitor to American models. Reports emphasize the model’s relatively low training costs, achieved despite U.S. export controls restricting access to advanced AI processing chips.

• January 23, 2025 

Commentators highlight the model’s efficiency, with prominent researchers stating it underscores the value of resourcefulness over enormous compute budgets.

• January 25, 2025 

The industry and investors begin to take note after reports reveal significantly lower costs of model training than U.S. counterparts, raising concerns about overspending by U.S. firms. 

• January 27, 2025 

DeepSeek’s iOS app dethrones ChatGPT as the leading app on the U.S. App Store, offering unlimited free access to R1. Stocks for U.S. AI and tech companies like Nvidia and Broadcom tumble as doubts arise about their competitive edge and the commercial viability of costly AI models.

• January 28, 2025 

DeepSeek open-sources its new multimodal model, Janus-Pro, on the Hugging Face platform, intensifying concerns about the company’s ability to disrupt the technological hierarchy. 

DeepSeek’s Impact on the U.S. Government 

The unprecedented rise of DeepSeek has created a sense of urgency within U.S. federal and state governments, forcing policymakers to act swiftly to mitigate perceived risks to national security and data integrity.

Federal Responses 

1. Legislation 

• No DeepSeek on Government Devices Act (February 6, 2025): Proposed by Representatives Josh Gottheimer (D-NJ) and Darin LaHood (R-IL), this bipartisan bill seeks to ban DeepSeek on federal government devices, citing concerns about surveillance and data vulnerability. 
• Broader bills, such as Senator Josh Hawley’s U.S.-China AI Decoupling Bill, aim to sever ties with Chinese AI technologies altogether and prohibit their import or use.

2. Agency and Military Action 

• The Department of Defense banned access to DeepSeek across Pentagon IT networks on January 28, 2025. The U.S. Navy issued a memo prohibiting the use of DeepSeek on government devices, citing “potential security and ethical concerns.” 
• NASA issued a similar directive to its personnel on January 31, 2025, forbidding interaction with DeepSeek platforms due to risks of unauthorized data sharing.

3. National Security Council Review 

The White House has confirmed an ongoing review by the National Security Council to evaluate DeepSeek’s implications for U.S. infrastructure and technological leadership.

State Government Actions 

Individual states have also acted decisively:

• Texas became the first state to issue a ban on DeepSeek on government-issued devices, citing concerns about Chinese influence on critical infrastructure. 
• New York and Virginia followed with similar bans, with their governors emphasizing concerns about surveillance and foreign influence.

Various additional state-level bills are under consideration, such as those introduced in Georgia and Kansas, to formalize DeepSeek prohibitions.

Implications for the Contracting Community 

Scrutiny in Government Contracts

Experts predict that restrictions on DeepSeek could extend into federal contracting policies. Likely outcomes include:

• Prohibiting DeepSeek’s integration into federally funded projects. 
• Increased pressure on contractors to ensure compliance with emerging rules aimed at blocking Chinese AI technologies. 

Data Security Demands 

Contractors collaborating with federal agencies may face heightened scrutiny regarding their cybersecurity practices and supply chain management to prevent potential vulnerabilities related to foreign technologies.

Competitive Challenges 

DeepSeek’s ability to deliver high-performing AI solutions at reduced costs could force U.S. contractors to re-evaluate their R&D budgets and pricing models. This shift may pressure U.S.-based companies to seek competitive innovations in efficiency and scalability.

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Broader Impact on the U.S. AI Landscape 

The rise of DeepSeek has cast doubt on the current trajectory of U.S. AI investments. Analysts note the following:

• Evolving Investment Strategies 

Investors are now questioning the viability of massive expenditures in training AI models when emerging competitors can achieve parity at dramatically lower costs. 

• Revisiting AI Trade Policy 

Policymakers are re-evaluating trade restrictions, such as export control measures, to enhance the competitiveness of U.S. technologies. 

• Accelerated Strategic Initiatives 

The launch of the $500 billion “Stargate Project,” announced by President Trump shortly after DeepSeek’s debut, reflects increased urgency in maintaining AI leadership through public sector investment.

What Does It All Mean? 

DeepSeek’s entry into the global AI market represents a watershed moment for the U.S. government and contracting community. The disruptive efficiency of its R1 and Janus-Pro models has raised critical national security, data integrity and competitive strategy concerns.

The regulatory landscape is evolving rapidly, signaling a future wherein compliance with prohibitions, cybersecurity standards and broader AI governance frameworks will be pivotal for U.S. contractors. As the U.S. strives to retain its AI dominance, enterprises and contractors must adapt strategically to align with policy shifts and technological advancements.

For contractors in government and technology sectors, this moment calls for proactive reassessment of partnerships and innovation strategies to remain competitive in a rapidly transforming AI landscape.