DeepSeek Shock Could Spur AI Space Race

Friday, 31 January 2025, 12:53 pm
Article: Bill Bennett

Last week America’s tech billionaires were literally centre stage at Donald Trump's presidential inauguration.

The message was clear: the US government wants to parade them in front of the world as the face of modern America. It also shows they have unparalleled influence over the incoming government.

These are some of the richest people in the world: Musk, Zuckerberg, Bezos and Apple CEO Tim Cook were all visible. Other tech leaders had background meetings with the president in the run up to the inauguration.

Half a trillion investment

The day after his inauguration, President Trump announced a US$500 billion private sector joint venture to build a new generation of AI data centres called Stargate.

He said the project would keep the US ahead of China in the global race for supremacy in artificial intelligence.

Fast forward a week, and America's place in that race was in question. The share prices of many US tech giants plummeted. Nvidia alone lost more shareholder value than any firm in history. It dropped 17 percent which is around a trillion New Zealand dollars.

A Chinese chatbot

The cause of the panic is DeepSeek, a Chinese AI chatbot.

DeepSeek upset the market because it cost a tiny fraction of the amount of money the US companies spent developing their AI systems. Around 5 percent—or one-twentieth—of ChatGPT’s development cost.

The two are not comparable, but it cost $6 million compared with the $500 billion investment announced by the president.

Only one of those two made front page news around the world.

There has been some questioning of DeepSeek's investment, but niggling over details changes little. The Chinese build an AI that is on a par with US AI, but cost less and works with fewer resources.

Deepseek is a free download and it was the world’s most downloaded app last week.

It is also Open Source, which undermines OpenAI which, despite its name, is not Open Source.

Chip wars

There is another reason DeepSeek took the US tech sector by surprise.

America cut off the supply of the latest AI chips to China as a way of keeping that competitive advantage the president refers to.

It’s an oversimplification, but many in the US assumed Chinese developers were lagging far behind their American counterparts. America see AI as one of the few remaining areas where that nation leads the world.

At the same time, US companies have a particular way of looking at AI development. We could call it a brute force approach to AI or we could think of it as a 'bigger is better' philosophy.

This approach requires building ever-larger data centres with ever more processing power, which, in turn, demands more energy to power the processing.

It is why new generating capacity is being built and old power plants are being fired up once more. You need a lot of electricity to draw your AI cat pictures or to make up the incorrect facts that AI often serves up. You also need it to do the real, worthwhile work that AI is sometimes capable of.

Doing more with less

This is a little like the story of the tortoise and the hare. The apparent plodder may not have got to the finish line first, but it is close behind.

In effect the Chinese developers squeezed the older generation chips it could access harder in order to get more out of them. Almost overnight they proved they are almost on a par with the US.

DeepSeek isn’t as powerful as the leading US AI systems, but it comes close and has the potential to close the gap.

Follow the money

There’s one more angle we need to talk about. The US tech giants could struggle to make their AI investments pay off. Customers are not buying as much of it as the tech companies hoped.

Recently Microsoft secretly hiked the consumer price of a subscription to its Office software to include its lame AI offering. The company could not get customers to pay separately for it. Why would you, Co-Pilot performs poorly by the standards of its rivals. Customers can opt out, but must dive deep into the settings to do so.

Tech giants have already spent tens of billions, they are building data centres, including the new data centres in New Zealand, to ride what they see as a profitable AI future, but DeepSeek suggests they may find it even harder to make their AI investments pay off in the short or medium term.

“DeepSeek could potentially burst the AI bubble and challenge the US’s dominance in tech innovation.”

Sputnik moment

Venture capitalist Marc Andreessen said "DeepSeek is AI's Sputnik moment”. In the 1950s the Russians shocked America by putting a satellite into orbit before the US. That sparked the space race.

This is why we should celebrate the arrival of DeepSeek despite its shortcomings. The censorship is worrying, but all AIs come with a degree of editing.

History tells us that technology advances best and delivers the most benefits to people when competition spurs innovation. The competition between US-based tech giants is one thing, but a competitor from China working from a different philosophical base, taking an alternative approach has to be a welcome addition.

Taking the initiative out of the hands of one nation, or one group of tech giants will be refreshing. DeepSeek could provide the impetus for bright entrepreneurs elsewhere in the world to seek out separate fresh AI paths.

What's more, DeepSeek makes better uses of energy and other resources. Competition in this area is also welcome. It could slow or even stop moves to reopen coal mines or drill more oil to generate power.

We need to be wary of DeepSeek in particular and AI in general, there are many risks with both, but by showing there is another way, DeepSeek has done everyone a favour.

DeepSeek shock could spur AI space race was first posted at billbennett.co.nz.

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Bill Bennett

Freelance journalist.

Auckland-based Bill Bennett writes technology and business stories that are directly relevant to New Zealand readers.

His emphasis is on telecommunications, but he also covers other aspects of technology and business. You can find his features in the New Zealand Herald and hear him regularly on RNZ Nine to Noon and the NZ Tech Podcast.

Bennett's The Download Weekly newsletter is published every Friday. You can sign up for it here. If you want to support his work, you can make a donation to his PressPatron account.

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