China's DeepSeek suggests AI can be done cheap. The fallout could be costlyBy North America correspondent Carrington Clarke in Washington DCTopic:Artificial Intelligence3h ago3 hours ago

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When DeepSeek surfaced, US stocks plunged. (Reuters: Dado Ruvic/Illustration)
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From market darling to the biggest value destructor in history.
Investors in computer chip company Nvidia have seen nearly a trillion dollars of value wiped out in a day — the worst-ever result for a single company in absolute terms.
In recent years, Nvidia saw its shares reach stratospheric heights as investors bet that its advanced chips would form the engine of the artificial intelligence revolution.
Then, little-known Chinese company DeepSeek entered the chat — with its own AI chatbot.
When it launched last week, its capabilities shocked the technology sector.
Nvidia, US tech stocks crumble on news of cheap Chinese AI app DeepSeek: Follow our blog for the latest developments
It appears to have similar functionality to market leader ChatGPT and it rocketed to the top of app stores around the world.
This wasn't supposed to happen.
Under former president Joe Biden, America implemented strict export controls on the most advanced computer chips to try to hobble its strategic rival in the field.
It means American companies cannot produce them in China, nor sell them to the country.
The controls were supposed to ensure American pre-eminence in artificial intelligence. Ensure that America would be at the forefront of a technology that is likely to reshape the way we work and live.
The collective wisdom of investors seemed to be that America had a major lead over China in this area. And that with China cut off from American chips, that lead should be maintained, at least in the short-term.
And yet, here is a Chinese company, founded in 2023, seemingly without access to America's best chips, creating a new product that rivals the best artificial intelligence technology in America.
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Tiny silicon chips are at the centre of big-stakes geopolitics. (Pexels: Poko Rie)
DeepSeek's founder, Liang Wenfeng, says his company has developed ways to build advanced AI models much more cheaply than its American competitors.
He says they've also figured out how to do it with fewer, and less-advanced, chips.
The company has made its model open source, allowing it to be downloaded by anyone.
It seems to undercut the need for the super-advanced chips that Nvidia makes. And it suggests that, compared to the chipmaker and other companies, you don't need to make a huge investment to profit from artificial intelligence.
Perhaps AI can be done on the cheap.
That's why we saw such widespread falls in US technology stocks on Monday, local time, as well as those companies whose future profits were tied to AI in different ways, like building or powering those large data centres thought necessary.
America is betting big on AI
One of the first major announcements of a freshly reinaugurated Donald Trump was a massive private investment in artificial intelligence in the US.
He brought together two tech CEOs and the head of a Japanese investment firm, Softbank, to detail their investment in AI in America of up to $US500 billion.
A project they dubbed "Stargate."
What is DeepSeek? Why the AI startup is up-ending the US stock market
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Photo shows A phone with DeepSeek on it. Behind it is a screen with ChatGPT
DeepSeek's AI assistant — a direct competitor to ChatGPT — has become the number one downloaded free app on Apple's App Store, with some worrying the Chinese startup has disrupted the US market. 
It's a massive dollar figure and there was some scepticism that the number was realistic, including from one of Trump's closest allies, tech mogul Elon Musk, who questioned whether Softbank had enough cash to stump up.
But the announcement was indicative of the priority given to investment in AI as part of America's economic future proofing, and a recognition of its potentially terrifying military applications.
Trump also promised to clear regulatory hurdles to fast-track the venture.
This is an issue where Trump and his predecessor were of one mind. 
One of Biden's legacy legislative achievements was the so-called CHIPs act (or "Creating Helpful Incentives to Produce Semiconductors" for America Act). 
It provided $US39 billion in subsidies for manufacturing computer chips in America and a further $US13 billion for research and training.
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Donald Trump's first major press conference of his second term was about AI investment. (Reuters: Carlos Barria)
Biden was explicit that its purpose was to support American preeminence in the space. Like his export bans, it was also to designed counter Chinese efforts.
On Monday evening, Trump said the development of DeepSeek "should be a wake-up call for our industries that we need to be laser-focused on competing to win". But he also said it "could be very much a positive development". 
"So instead of spending billions and billions, you'll spend less, and you'll come up with, hopefully, the same solution under the Trump administration," he said.
China has long had its own industrial policy to support local chip manufacturing and AI technology.
In 2015 the Chinese government launched its "Made in China 2025" initiative, which aimed to achieve 70 per cent "self-sufficiency" in chip production by this year.
The US House Committee on the Chinese Communist Party has been advocating for stronger sanctions against China and warning of "dangerous loopholes" in US export controls.
What happens now?
It's been a painful day for those invested in Nvidia, but it remains to be seen whether today's sell-off was warranted or an overreaction.
Nvidia's explosion in value in recent years has been the most powerful symbol of how seriously investors are taking the potential of AI. But the company has also seen multiple days of extraordinary falls in recent months, when new pieces of information have been digested, before again rising. This may prove to be a blip.
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There are also still big questions about how advanced DeepSeek's technology truly is and whether people outside China will want to use an AI tool that must still adhere to Chinese state censorship.
Don't try asking what happened in Tiananmen Square in 1989 or Chinese treatment of the Uighur minority.
A subplot to Monday's action was DeepSeek saying it had been hit with a large-scale cyber attack and had limited user registrations in response.
It's unclear exactly who's behind the attack and the motivation.
What is clear is that the battle for AI supremacy is by no means over, with neither China nor America likely to cede the field any time soon.