Stunning breakthroughs from China's DeepSeek AI alarm U.S. rivals

Axios

05-02-2025

Breakthroughs from Chinese AI startup DeepSeek have stunned Silicon Valley and could bring turbulence to Wall Street, as they were accomplished at a fraction of what the U.S. giants are spending and despite export bans on top-of-the-line chips.
Why it matters: China's rapid advances suggest America's strategy of withholding technology from China might just be speeding up the evolution of its rival's AI knowhow.
DeepSeek's rise is alarming the likes of Meta, which announced Friday that it plans $60 billion-$65 billion in capital investment this year as it scales up its own AI projects.
But it could potentially also be bad news for Nvidia, which designs the world's most advanced AI chips, because DeepSeek is proving that rapid advances are possible even with fewer and less sophisticated chips.
Nvidia's stock slid on Friday and again in overnight trading last night, pulling the Nasdaq down with it.
Driving the news: DeepSeek hit No. 1 on Apple's App Store a week after the Jan. 20 release of its R1 model, which works along similar lines to OpenAI's o1.
Presented with a complex challenge, it takes time to consider alternate approaches before picking the best solution — and it explains its chain of reasoning to users. These "reasoning" models are especially good at coding and math.
Just last month another DeepSeek model, v3, stunned AI experts by providing performance comparable to OpenAI's and Anthropic's most advanced publicly available general models, as Axios reported.
The kicker is that DeepSeek created and released its entirely open source project for about $6 million in training costs ("a joke of a budget," in one expert's words). OpenAI is spending hundreds of millions of dollars.
The results from China have turned eyes around the world and revved up concerns in the U.S. that its lead in the so-called AI race between the two superpowers may be shrinking.
DeepSeek spun out of a Chinese hedge-fund firm two years ago, hired ambitious young AI scientists, and set them to figure out more efficient ways to develop models, per Wired, and they focused on basic research rather than consumer product development.
The other side: It's not as though the U.S.' efforts to keep the best chips out of China haven't had an impact.
DeepSeek is said to have already amassed a training network of 10,000 Nvidia H100s by the time U.S. sanctions were introduced in 2022.
But DeepSeek's CEO has said that the export controls, and resulting scarcity of Nvidia's top-of-the-line chips, have been "a problem."
No one knows where DeepSeek would stand today if it didn't face those roadblocks.
We also can't say whether DeepSeek would be making such rapid advances on its own without having the latest work from OpenAI and its U.S. competitors to aim at.
Our thought bubble: Scarcity drives innovation, China has some great AI minds at work, and the U.S. might need to rethink its strategy.
Silicon Valley's startup culture relentlessly pushes research in the direction of the consumer market. But sometimes, particularly when a field is young and applications aren't immediately obvious, basic research is even more important than market share — and open research tends to overwhelm secret research.
OpenAI's pivot from "world's best AI lab" to "aspiring consumer tech giant" has wowed the financial world but could leave the U.S. in second place.