Tencent, Alibaba in Talks to Fund DeepSeek at Over $20 Billion

Chinese tech giants Tencent Holdings and Alibaba Group are in discussions to invest in artificial intelligence startup DeepSeek at a valuation that could top $20 billion, a figure that has doubled in just the last week amid immense investor interest. The move signals a major effort by China’s largest tech firms to back a domestic AI champion in the increasingly expensive race against Western competitors.

“This is about securing a strong foothold in the generative AI race, which is becoming prohibitively capital-intensive,” said a person with knowledge of the talks, citing the need to compete with heavily-funded players like OpenAI. “DeepSeek has shown impressive capabilities, and this level of investment from Tencent and Alibaba would be a significant accelerant.”

The talks are still underway and the final valuation could change, according to a report from The Information. DeepSeek, which is owned by Chinese hedge fund High-Flyer Capital Management, was reportedly seeking to raise at least $300 million at a $10 billion valuation just last week. The sharp increase reflects the intense demand for promising AI model developers.

The potential fundraise highlights the staggering capital requirements needed to develop and operate leading-edge AI models. The situation mirrors that of Western leaders like OpenAI, which has raised over $58 billion and was recently valued at $852 billion. Despite generating over $10 billion in revenue in 2025, OpenAI is projected to have cumulative losses of more than $140 billion between 2024 and 2029, according to industry analysis, driven by the immense cost of GPUs from providers like Nvidia and massive research and development budgets.

China’s AI Arms Race Heats Up

The move by Tencent and Alibaba to back DeepSeek is part of a broader strategic realignment within China's tech sector. As US restrictions limit access to the most advanced chips, domestic firms are pouring resources into local talent and platforms. This investment would give DeepSeek enormous resources while solidifying the AI sector's importance for China's biggest technology companies as they face off against global rivals.

Competition is fierce both abroad and at home. Globally, Google's Gemini and Anthropic's Claude models are making significant inroads. In China, a host of startups and established players are developing their own large language models. Tesla is reportedly planning to integrate models from Chinese companies like DeepSeek and ByteDance’s Doubao for its in-car voice assistant in the country, a sign of the technology's growing integration.

Investment Implications

For Tencent (0700.HK) and Alibaba (9988.HK), an investment in DeepSeek represents a critical strategic hedge. As their core businesses in gaming, social media, and e-commerce mature, generative AI is seen as the next major growth engine. Securing a stake in a leading domestic model developer ensures they are not left behind as AI becomes deeply integrated into everything from enterprise software to consumer-facing applications like electric vehicles.

The high valuation also serves as a new benchmark for AI startups in China, potentially driving up valuations for other companies in the sector. However, the immense cash burn required to stay competitive means that even with backing from giants like Tencent and Alibaba, the path to profitability for companies like DeepSeek remains long and uncertain.

This article is for informational purposes only and does not constitute investment advice.