The powerful emergence of DeepSeek, the new low-cost artificial intelligence born in China, has shaken not only the markets, with a brutal destruction of nearly a trillion dollars in value on Monday, but also the foundations of the fledgling AI policy of the new Donald Trump administration. The crash of Nvidia's shares can be contextualized and relativized, with the most affected suffering a loss of almost 600 billion dollars in just a few hours, arguing that part of it has been recovered, it is not the first time, and that out of the 10 major drops in a Wall Street session, the chip company has led most in recent years. However, it is much more difficult to downplay the effect on the entire American establishment, political and business, caught completely off guard, still disoriented and asking uncomfortable questions.
"Hopefully, the launch of DeepSeek AI from a Chinese company should be a wake-up call for our industries that we must focus on competing to win because we have the best scientists in the world," Trump told Republican congressmen at a retreat organized at his Miami facilities. Whether the crisis is seen as a problem or an opportunity, what is clear is that it will push the envelope, tighten deadlines, and force the government and tech gurus to step up.
"DeepSeek's R1 is an impressive model, especially considering what they can offer for the price. Obviously, we will offer much better models, and it is really exciting to have a new competitor. We will launch some new ones," immediately promised Sam Altman, the head of Open AI who revolutionized the world of artificial intelligence with ChatGTP, opening a door to empower foundational models and generative AI to hundreds, if not billions, of people. "But above all, we are excited to continue executing our research roadmap and believe that now more than ever it is important to have more computing power to succeed in our mission. The world will want to use a lot of AI and will truly be amazed by the next-generation models that will come," Altman added.
Just a week ago, Altman (former friend, collaborator, and partner of Elon Musk, now his archenemy) presented alongside Trump and Larry Ellison of Oracle the Stargate initiative, which predicted an investment of up to half a trillion dollars in a few years to build data centers and generate the necessary electricity for the subsequent development of AI in Texas, according to the White House. "It's a lot of money and high-quality people," said Trump, adding that it is "a resounding vote of confidence in the potential of the United States" under his new administration, even though the project was already underway with Biden.
And yet, doubts now arise. The world will continue to need a lot of powerful chips from companies like Nvidia. The U.S. will clearly remain ahead, with major tech companies dedicating vast amounts of money. But for an unknown Chinese startup, apparently with an initial investment of less than six million dollars, and one-eighth of the chips that American companies need, to have created an AI almost as effective and powerful, completely changes the rules of the game. For everyone.
First for Trump, who now faces a huge decision. In his early hours in office, he signed an executive order to "unburden" the country's companies working on AI, revoking, for example, the rules imposed by Joe Biden that required companies to inform the government when developing powerful models. But the debate that now arises more forcefully than ever is whether Washington should maintain or even tighten the already strict restrictions on chip exports.
The emergence of DeepSeek, even if not everything the company has claimed is true, both about the actual cost and its access to chips, shows several things. Either the restrictions that have been in place for a year are not effective, and China is able to obtain the most powerful chips irregularly or on the black market, or what has been generated is much more unsettling for American supremacy: they have stimulated the creativity and ability of their rivals, now capable of being much more efficient, effective, and powerful due to the lack of means and resources. Both options are bad for the White House but would require different responses.
Nvidia has always opposed restrictions that prevent selling its cutting-edge technology to China, and now Trump should reassess the standards set by the Department of Commerce and the future of billions of dollars in subsidies to manufacture semiconductors in the United States. In 2022, the Biden administration significantly restricted exports to its great systemic rival in the 21st century. U.S. companies wanting to sell to China first had to limit a chip function known as interconnection bandwidth, which affects the speed at which data is transferred.
What Nvidia and others did was to create a specific product for China that strictly complies with this specific parameter but in a way compensates by offering other ways to maintain high performance. Some experts cited by The Wall Street Journal estimate that in this way, the end result is almost as powerful as Nvidia's best chip on the U.S. market. In 2023, after realizing that the restrictions had blind spots and gaps to cover, the Biden administration tightened the rules, forcing only much less powerful versions to be offered. However, DeepSeek had almost a year to accumulate reserves of that specific chip for the Chinese market, the H800, which is what DeepSeek used. Specifically, 2,048 to train one of its AI models, which remains impressive because Open AI equivalents used up to 16,000.
The revolution also forces companies and investors to change their plans and strategies. DeepSeek apparently did not invent new optimization techniques, it simply maximized the tools at its disposal to make training require less money -Chat GTP has burned up to 100 million dollars-, less computing power, and make the most of its architecture with the available hardware. It has shown that in AI development, there are two paths: the fast one, injecting millions non-stop with huge servers and massive energy consumption, or with a lot of work. Somewhat slower but more efficient, something that could be crucial in the third phase.
And that inevitably shifts the focus to the market. Are investors willing to bet everything on American models, more expensive, apparently less efficient, but leading? Will they adjust their positions assuming that Nvidia and others are not worth what they seemed to be worth? Or, beyond that, will they assume that Trump will completely shut off the tap to maintain leadership at all costs, even if it means a blow that may be impossible to compensate for the main players, especially chip manufacturers?