Trump warns of ‘wake-up call’ as low-cost Chinese AI jolts Silicon Valley
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Investors sold technology stocks across the globe on Jan 27 over concerns the emergence of a low-cost Chinese AI model would threaten the dominance of current AI leaders.
PHOTO: REUTERS
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MIAMI - Fears of upheaval in the AI gold rush rocked Wall Street on Jan 27 following the emergence of a popular ChatGPT-like model from China, with US President Donald Trump saying it was a “wake-up call” for Silicon Valley.
Last week’s release of the latest DeepSeek model initially received limited attention, overshadowed by the inauguration of Mr Trump
However, over the weekend, the Chinese artificial intelligence start-up’s chatbot surged to become the most downloaded free app on Apple’s US App Store,
What truly rattled the industry was DeepSeek’s claim that 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.
On Deepseek’s official WeChat account, it said that its R1 model is 20 to 50 times more affordable to use than OpenAI’s o1 model, depending on the task.
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.
AI models from ChatGPT to DeepSeek require advanced chips to power their training. The Biden administration has since 2021 widened the scope of bans designed to stop these chips from being exported to China and used to train Chinese firms’ AI models.
However, DeepSeek researchers wrote in a paper last month that the DeepSeek-V3 used Nvidia’s H800 chips for training, spending less than US$6 million.
Although this detail has since been disputed, the claim that the chips used were less powerful than the most advanced Nvidia products Washington has sought to keep out of China, as well as the relatively cheap training costs, has prompted US tech executives to question the effectiveness of tech export controls.
The news of Deepseek’s expenditure 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 American technological dominance.
Mr Trump reacted quickly on Jan 27, 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 that it could be a “positive” for US 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 officer Sam Altman called DeepSeek’s R1 AI model “impressive” on Jan 27, but emphasised that OpenAI believes greater computing power was key to their own success.
“DeepSeek’s r1 is an impressive model, particularly around what they’re able to deliver for the price,” Mr Altman said on X. “But mostly we are excited to continue to execute on our research roadmap and believe more compute is more important now than ever before to succeed at our mission.”
The development comes against a background of a US government push to ban Chinese-owned TikTok in the United States or force its sale.
Mr David Sacks, Trump’s AI adviser and prominent tech investor, said DeepSeek’s success justified the White House’s decision to reverse executive orders, issued under former president 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,” Mr Sacks wrote on X.
Mr 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 Ms 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, he warned: “We should take the developments out of China very, very seriously.”
Microsoft, an eager adopter of generative AI, plans to invest US$80 billion in AI this year, while Meta announced at least $60 billion in investments on Jan 24.
‘Outplayed’
Much of that investment goes into the coffers of Nvidia, whose shares plunged a staggering 17 per cent on Jan 27.
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 esteemed Stratechery tech newsletter and others suggested that DeepSeek’s innovations stemmed from necessity, as lacking access to powerful Nvidia-designed chips forced them to develop novel methods.
The export controls are “driving start-ups like DeepSeek to innovate in ways that prioritize efficiency, resource-pooling, and collaboration,” wrote the MIT Technology Review.
Mr 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 start-up backed by Amazon and Meta.
But such accusations “sound like a rich kids 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”.
On the same day that it shot to worldwide attention, DeepSeek said that it would temporarily limit registrations due to a cyber attack.
The company resolved issues relating to its application programming interface and users’ inability to log in to the website, according to its status page. The outages on Jan 27 were the company’s longest in around 90 days and coincided with its sky-rocketing popularity.
Little is known about the company behind DeepSeek, a small Hangzhou-based start-up founded in 2023, when search engine giant Baidu released the first Chinese AI large-language model.
Since then, dozens of Chinese tech companies large and small have released their own AI models, but DeepSeek is the first to be praised by the US tech industry as matching or even surpassing the performance of cutting-edge US models. AFP, REUTERS
