DeepSeek has paused its second fundraising round after informing some investors that the signing process will not proceed for now. The company had been preparing to raise fresh capital only weeks after completing its first financing deal, at a time when large AI labs face heavy spending needs for computing power, model training, and engineering talent.

The pause followed the online spread of private remarks attributed to Liang Wenfeng, the founder of the AI lab. Liang was said to be unhappy that information from an earlier investment meeting had leaked, according to Bloomberg.

DeepSeek closed its initial financing round in June, bringing $7 billion into the lab. Social media platforms were later filled with posts that appeared to contain a transcript of a meeting Liang had held with unnamed participants, although Bloomberg said it could not verify the material’s authenticity.

Chinese outlet Yicai reported that Liang discussed China’s need for Nvidia (NASDAQ: NVDA) hardware and the country’s lower level of AI development compared with the United States. DeepSeek may still reopen the fundraising process later, and the discussions have not ended.

DeepSeek reviews 10 billion yuan funding plan while investors wait

DeepSeek had been seeking at least 10 billion yuan in the new round. That amount could have increased if additional investors had joined. The company was also asking backers to accept a pre-money valuation of at least 480 billion yuan, higher than the roughly $50 billion valuation used in its first financing.

The earlier round drew Tencent Holdings (HKEX: 0700) and Contemporary Amperex Technology Co. Ltd. (SZSE: 300750). DeepSeek began follow-on discussions soon after that transaction closed. Some agreements had been expected to be signed within days before the company verbally told certain backers that the timetable had changed.

It remains unclear whether all prospective investors received the same notice. DeepSeek could restart the process, change the size of the round, or proceed with a smaller group of investors. No new closing date has been announced, leaving investors to watch whether the company keeps the same valuation target and timetable if talks resume.

DeepSeek is also preparing for a potential public listing. The company may be positioned to file this year. Such a move would make DeepSeek one of China’s closely watched AI companies seeking a stock-market listing, as Beijing works to build a technology ecosystem less dependent on U.S. equipment.

China pushes domestic chips as Nvidia access becomes harder and costlier

China’s government has long been concerned that domestic AI companies rely too heavily on Nvidia. Many Chinese engineers have built AI systems around Nvidia software, which is not compatible with domestically produced hardware. That dependence has made access to advanced chips a central issue for Chinese AI developers, because model training and deployment require large clusters of specialized processors.

Nvidia developed China-specific products designed to stay below limits set by U.S. export rules. Chinese buyers also used other channels. Some purchased restricted processors through traders that routed the chips through third countries before they reached buyers in mainland China.

In response, Beijing brought together university scientists and semiconductor specialists in a national semiconductor project. The approach differed from standard practice, under which such plans would typically be developed internally by senior ministries and departments. China also raised almost $48 billion for a semiconductor state fund in 2024.

Progress by local manufacturers later gave officials more scope to restrict foreign chips. Huawei prepared its Ascend 950, and early users found its performance stronger than expected. Alibaba (NYSE: BABA; HKEX: 9988) also reported progress in its processor development work.

Around the same period, Nvidia Chief Executive Jensen Huang visited Beijing after Trump approved sales of the lower-powered H20 chip. U.S. Commerce Secretary Howard Lutnick said on television that China could remain dependent on American systems by receiving Nvidia’s “fourth-best product.”

Nvidia later sought to regain more business in China. Trump said in December that he told Xi Jinping the company could sell the stronger H200. Chinese officials, however, were already adopting a tougher position. They summoned technology companies, sometimes weekly, to ask whether the H200 was truly necessary.

By January, some companies were told to purchase the H200 only when needed. They were also required to promise greater use of Chinese processors. The policy directed more orders to local chipmakers, but factories could not expand output quickly enough, creating shortages.

The pressure also contributed to an increase in smuggling. Chinese suppliers said prices for smuggled Nvidia graphics processing units more than doubled in six months because of strict U.S. law enforcement and delayed shipments through the Middle East. Companies also began building large computing arrays using Nvidia’s latest Blackwell processors.