Microsoft (Nasdaq: MSFT) and OpenAI are investigating suspected unauthorized harvesting of artificial intelligence data by Chinese rival DeepSeek.

The probe follows DeepSeek’s surprise announcement of its R1 AI system, which the company claims achieves top-tier performance at minimal cost. The news rattled Wall Street, triggering a massive sell-off in tech stocks that erased $1 trillion in market value.

Internal security teams at Microsoft flagged suspicious patterns last fall when they discovered unusual access to OpenAI’s programming interface. Sources close to the investigation say multiple accounts linked to DeepSeek may have circumvented usage limits to collect extensive data.

David Sacks, who’s overseeing AI policy under the Trump administration, points to evidence suggesting DeepSeek employed distillation — a controversial practice where new AI systems are built by studying the responses of existing ones.

“There’s substantial evidence that what DeepSeek did here is they distilled knowledge out of OpenAI models and I don’t think OpenAI is very happy about this,” he told Fox News on Tuesday.

“We know PRC based companies — and others — are constantly trying to distill the models of leading US AI companies,” an OpenAI spokesperson said, adding that the company works closely with the US government to protect advanced AI capabilities.

Information for this story was found via Bloomberg, and the sources and companies mentioned. The author has no securities or affiliations related to the organizations discussed. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.