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Feb 19 (Reuters) - Chinese AI startup DeepSeek is considering outside funding for the first time and has drawn interest from Alibaba 9988.HK and state funds, The Information reported on Wednesday, citing sources with knowledge of internal discussions.

The Chinese company stunned the tech industry in January with low-cost AI models that can match or even outperform Western rivals at a fraction of the cost, stirring doubts about the lead U.S. has in the race to dominate the technology.

But a surge in demand since then has caused outages at the small startup. The need for more AI chips and servers to handle fast-growing usage and support model development drove its decision to consider outside funding, the report said.

China Investment Corp and the National Social Security Fund have contacted DeepSeek for investment, the report said. The funds could not be immediately reached, while Alibaba and DeepSeek did not respond to Reuters requests for comment.

Executives at the Chinese AI firm and its hedge fund parent, High-Flyer Capital Management, are also talking about shifting its focus to building a business that generates revenue and eventually profit from research, the report said.

Rival OpenAI is planning to revamp its for-profit arm into a public benefit corporation to ease the restrictions imposed by its current non-profit parent and increase investments.

China's President Xi Jinping had recently met with private sector business leaders, including Alibaba co-founder Jack Ma and Liang Wenfeng, founder of DeepSeek, to bolster the country's economy and advance its technological capabilities.

(Reporting by Harshita Mary Varghese in Bengaluru; Editing by Arun Koyyur)

((HarshitaMary.Varghese@thomsonreuters.com;))