DeepSeek is a lesson from history we should have learned by now
There were car manufacturers before Henry Ford came up with the Model T. The past teaches us that – but then how many of today's tech titans pay any regard to yesteryear?
Look at what occurred yesterday with Nvidia. There was the US chipmaker, seemingly impervious to anything, the world's most valuable company, and along comes Chinese start-up DeepSeek with news it can undercut the market in AI technology, and Nvidia crashes. The shares that rose 171 per cent in 2024 and 239 per cent in 2023, to help produce a corporation worth $3.45 trillion, collapsed. They were off a historic 17 per cent, wiping $589 billion off its market capitalisation.
Nvidia makes chips for graphic processing units, or GPUs, used to develop and deploy AI software such as OpenAI's ChatGPT. It holds the strongest position in the burgeoning industry. Nothing could touch it. Or at least that appeared to be the case until DeepSeek said it could do similar for less.
Accompanying Nvidia, the tech-concentrated Nasdaq index fell 3.1 per cent and the S&P 500 dropped 1.5 per cent. The capitals of tech and tech financing, in Silicon Valley and Wall Street, were sent into a tailspin. Around the world, ordinary investors, but also pension funds and institutions, held their heads in horror. Again, another history lesson had been ignored. There they were piling in to Nvidia, following the crowd, drinking the Kool-Aid, and failing to recognise that shares can go down as well as up.
We've got used to these Masters of the Universe sweeping all before them. The bosses of the tech giants are the kings of our age, worshipped for their fanfare product launches, admired for constantly innovating and finding new ways to make our lives easier and to generate ever greater profits. At the US presidential inauguration, their stars were given front-row seats, even relegating Donald Trump's new cabinet to sitting behind.
Those with longer memories, versed in less fashionable trades, are able to recall that nothing lasts forever, that gravity has an irresistible pull. One person who knows all about that, to his own, cost is Trump himself. He's experienced many a knock in real estate, and doubtless has been responsible for creating a few. It should be no surprise then that Trump, fresh from lauding the achievements of the US tech billionaires, described DeepSeek's revelation as 'a wake-up call' for the US industry.
He's also aware that people, companies, can bounce back – after all, he is living proof. So he quickly said the Chinese development may be 'a positive' for the US. He might, too, have been reluctant to heap praise upon Beijing. 'If you could do it cheaper, if you could do it [for] less [and] get to the same end result, I think that's a good thing for us,' he told reporters on board Air Force One.
It was an instinctive reaction, but possibly the right one; Trump is on home ground when talking about the machinations of business. He said he was unconcerned, confident the US would remain a dominant player in AI.
Sure enough, OpenAI's CEO, Sam Altman, said his company would fast-track product releases and 'deliver much better models' to head-off DeepSeek's R1 rival AI chatbot. Nvidia shares recovered slightly, rising 3.5 per cent. The Nasdaq and S&P 500 were also returning to the black.
Nevertheless, DeepSeek's advance raises stark, longer-term questions for AI production. It was only last week that SoftBank, Oracle and OpenAI unveiled their Stargate joint venture, spending $100 billion on a data centre. Elsewhere, other vast sums have been committed to building the data centres and plants required for creating AI products. DeepSeek's ability to not devote anything like as much capital must put a doubt against those plans.
For now, there is relief that the fall has not continued – although it may do so again, such is the volatility in tech. The City was quick, naturally, to mark the dip down as a blip. 'Sell first, think later' was how it was portrayed. Equally, given the stampede to climb aboard Nvidia et al in the first place, that was also 'Buy first, think later'.
If only they had consulted their Henry Ford. As the great man said: 'I will build a car for the great multitude. It will be large enough for the family, but small enough for the individual to run and care for. It will be constructed of the best materials, by the best men to be hired, after the simplest designs that modern engineering can devise. But it will be so low in price that no man making a good salary will be unable to own one...'
For the Ford Model T, read the DeepSeek R1.
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