Key Takeaways:
Tencent Holdings Ltd. and Alibaba Group Holding Ltd. are in discussions to anchor a funding round for AI startup DeepSeek that could value it at more than $20 billion, a major push by China’s tech leaders to back a promising domestic challenger to OpenAI. The move signals an escalation in the country's artificial intelligence race, where established giants are vying for influence by funding and providing critical cloud infrastructure to up-and-coming model developers.
"Tencent has proposed the acquisition of as much as a 20% stake in the startup as part of the funding round, though DeepSeek isn’t keen on ceding such a large portion of control," a person familiar with the matter said, asking to remain anonymous to discuss private negotiations. Representatives for DeepSeek, Alibaba, and Tencent didn’t respond to requests for comment.
DeepSeek is seeking to raise at least $300 million, according to reports. While talks are ongoing, potential investors are benchmarking the company against another Chinese AI startup, Moonshot AI, which was valued at $18 billion in its latest funding round. The Information previously reported a potential valuation of at least $20 billion for DeepSeek. Shunwei Capital, a venture capital firm backed by Xiaomi founder Lei Jun, is also reportedly in discussions.
This potential investment is critical for Tencent and Alibaba, who are not only competing with startups like DeepSeek, Moonshot, and MiniMax Group Inc. but are also major suppliers of cloud services. By backing these startups, they secure future customers for their computing platforms, a business model similar to Microsoft Corp.'s backing of OpenAI and Amazon.com Inc.'s cloud dominance. The deal would reinforce the strategic necessity of AI investment for China's largest tech corporations as they seek to establish leadership in the sector.
The race to fund companies like DeepSeek underscores the intense competition in China's AI landscape. Both Tencent and Alibaba are also investors in MiniMax, the developer of the M2 large language model, highlighting a strategy of hedging bets across multiple high-potential startups. This investment frenzy comes as China aims to achieve self-sufficiency in critical technologies, including AI, despite limited access to the most advanced semiconductor technology.
Tencent recently stated it would double its investments in AI to more than 36 billion yuan ($5.2 billion) this year. Alibaba, which reorganized to consolidate its AI services last month, recently unveiled a new model capable of creating 3D environments.
Founded in 2023 by Liang Wenfeng, co-founder of hedge fund Zhejiang High-Flyer Asset Management, DeepSeek has quickly gained prominence. The startup released a breakthrough model in January 2025 that achieved performance comparable to leading US systems.
It has differentiated itself from US rivals like OpenAI and Anthropic PBC by focusing on low-cost, open-source models. This strategy can foster rapid adoption and community-driven development, creating a different kind of competitive moat. The company is also expanding into "agentic AI," developing systems capable of performing tasks autonomously, a move indicated by recent job postings. The backing from tech giants would provide not just capital, but also the vast cloud computing resources necessary to train and operate these increasingly complex AI systems.
This article is for informational purposes only and does not constitute investment advice.
