By Ed Malik, A | ed@ddnewsonline.com | posted January 29th, 2025
A Chinese artificial intelligence startup has sent shock waves throughout Silicon Valley and appears to threaten U.S. AI dominance.
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DeepSeek, little more than a year old, launched an AI model that offers comparable performance to the world’s best chatbots at seemingly a fraction of the cost, observed several media sources.
Major U.S. technology stocks — including Nvidia, Microsoft, and Tesla — lost a colossal $1 trillion market cap Monday on fears of disruption from DeepSeek, and this Chinese model has called into question Big Tech’s massive spend on building AI models and data centers when it can be done a cheaper way.
How did we get here? Last week’s release of the latest DeepSeek model initially received limited attention, overshadowed by the inauguration of Trump on the same day. From that Monday following the emergence of a popular ChatGPT-like model from China, with President Donald Trump responding that it was a “wake-up call” for Silicon Valley.
Over the weekend, the Chinese artificial intelligence startup’s chatbot surged to become the most downloaded free app on Apple’s U.S. App Store, displacing OpenAI’s ChatGPT.
What truly rattled the industry was DeepSeek’s claim it developed its latest model, the R1, at a fraction of the cost that major companies are investing in AI development, primarily on expensive Nvidia chips and software.
The development is significant given the AI boom, ignited by ChatGPT’s release in late 2022, has propelled Nvidia to become one of the world’s most valuable companies.
The news sent shockwaves through the US tech sector, exposing a critical concern: should tech giants continue to pour hundreds of billions of dollars into AI investment when a Chinese company can apparently produce a comparable model so economically?
DeepSeek’s apparent advances were a poke in the eye to Washington and its priority of thwarting China by maintaining US technological dominance.
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Trump reacted quickly Monday, saying the DeepSeek release “should be a wake-up call for our industries that we need to be laser-focused on competing to win.”
He argued it could be a “positive” for U.S. tech giants, adding: “instead of spending billions and billions, you’ll spend less, and you’ll come up with hopefully the same solution.”
OpenAI chief executive Sam Altman said in a post on X that it was “legit invigorating to have a new competitor.”
He called DeepSeek’s R1 “an impressive model, particularly around what they’re able to deliver for the price,” and pledged to speed up some OpenAI releases.
The development comes against the background of a U.S. government push to ban Chinese-owned TikTok in the United States or force its sale.
David Sacks, Trump’s AI advisor and prominent tech investor, said DeepSeek’s success justified the White House’s decision to reverse executive orders, issued under Joe Biden, that established safety standards for AI development.
The regulations “would have hamstrung American AI companies without any guarantee that China would follow suit,” Sacks wrote on X.
Adam Kovacevich, CEO of the tech industry trade group Chamber of Progress, echoed the sentiment: “Now the top AI concern has to be ensuring (the United States) wins.”
Tech investor and Trump ally Marc Andreessen declared “Deepseek R1 is AI’s Sputnik moment,” referencing the 1957 launch of Earth’s first artificial satellite by the Soviet Union that stunned the Western world.
“If China is catching up quickly to the US in the AI race, then the economics of AI will be turned on its head,” warned Kathleen Brooks, research director at XTB, in a note to clients.
Microsoft CEO Satya Nadella took to social media hours before markets opened to argue less expensive AI was good for everyone.
But last week at the World Economic Forum in Davos, Nadella warned: “We should take the developments out of China very, very seriously.”
Australia’s Science Minister Ed Husic raised privacy concerns, urging users to think carefully before downloading the chatbot.
“There are a lot of questions that will need to be answered in time on quality, consumer preferences, data and privacy management,” Husic told national broadcaster ABC.
“I would be very careful about that. This type of issues need to be weighed up carefully.”
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Microsoft, an eager adopter of generative AI, plans to invest $80 billion in AI this year, while Meta announced at least $60 billion in investments on Friday.
Much of that investment goes into the coffers of Nvidia, whose shares plunged a staggering 17% Monday.
The situation is particularly remarkable since DeepSeek, as a Chinese company, lacks easy access to Nvidia’s state-of-the-art chips after the US government placed export restrictions on them.
The export controls are “driving startups like DeepSeek to innovate in ways that prioritize efficiency, resource-pooling, and collaboration,” wrote the MIT Technology Review.
Elon Musk, who has invested heavily in Nvidia chips for his company xAI, suspects DeepSeek of secretly accessing banned H100 chips – an accusation also made by the CEO of ScaleAI, a prominent Silicon Valley startup backed by Amazon and Meta.
But such accusations “sound like a rich kid’ team got outplayed by a poor kids team,” wrote Hong Kong-based investor Jen Zhu Scott on X.
In a statement, Nvidia said DeepSeek’s technology was “fully export control compliant.”
“To see the DeepSeek new model, it’s super impressive in terms of both how they have really effectively done an open-source model that does this inference-time compute, and is super-compute efficient,” cautioned Microsoft CEO Satya Nadella on Wednesday at the World Economic Forum in Davos, Switzerland. “We should take the developments out of China very, very seriously.”
What is clear from this Deepseek’s shocked entry into the AI stratosphere is that the much-touted Biden administration’s chip export curbs failed to stop China’s technology advancement and so, Congress must figure out how to slow down Beijing, which greatly relies on technology for its military and economy.
For now, it appears DeepSeek either found a way to work around the rules, or that the export controls were not enough of a restriction.
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President Donald Trump said the emergence of R1 was a “wake-up call” for Silicon Valley.
David Sacks, Trump’s crypto and AI czar, blamed the Biden administration for regulation that “hamstrung” AI development.
“DeepSeek R1 shows that the AI race will be very competitive and that President Trump was right to rescind the Biden EO, which hamstrung American AI companies without asking whether China would do the same. (Obviously not.) I’m confident in the U.S. but we can’t be complacent,” Sacks posted on X.
Two days after taking office, Trump talked about investing up to $500 billion for infrastructure in a joint venture tied to artificial intelligence by a new partnership formed by OpenAI, Oracle, and SoftBank.
NOTE: This report referenced Newsmax and several AI sources.