The stock market lost a trillion dollars on Monday. Chip maker Nvidia, which Wall Street was betting would lead the U.S. to the promised land of artificial intelligence dominance, lost 12% of its value, or $600 billion. It was the largest single-day loss in the history of the stock market.
Did someone drop a nuclear weapon? Not exactly, but close. A company in China that few had ever heard of until this week released its latest AI model, which it calls R1. What has tech bros near apoplexy is that R1 does as good a job at "problem-solving, performing on par with OpenAI’s o1 reasoning model—but at a fraction of the cost per use," according to the Wall Street Journal. (PJ Media columnist Richard Fernandez has more here.)
Nvidia has been a glamor stock for years as its advanced chip designs promised to power artificial intelligence platforms into the future. Overnight, that entire argument has been called into question. If DeepSeek can do the job at a fraction of the cost using less-advanced chips, why should companies spend money to buy Nvidia's chips?
DeepSeek claims that it took just $6 million and two months to build its reasoning model. That astonishing bit of information has some analysts wondering whether the U.S. ban on advanced chip sales to China is as airtight as we think it is.
"That DeepSeek appears to have been able to achieve state-of-the-art performance suggests that those export controls may be ineffective—either because U.S.-designed chips aren’t necessary to make the best AI models, or because those chips are somehow making it to China in sufficient quantities anyway," reports the Journal.
To my mind, it sounds a lot like the "Cold Fusion" excitement of the 1980s. Cold fusion promised the unlimited energy of fusion reactors without having to create the conditions in the core of the Sun: millions of degrees and incredible pressures. The two electro-chemists who conducted the original experiment detected "excess heat" and a small amount of nuclear reaction byproducts, including neutrons and tritium. Was it fusion? The debate continues, although most physicists dismiss the concept.
The implications of DeepSeek are far too frightening to dismiss out of hand.
A cheap-to-make, Chinese-owned AI model could be the harbinger of a frightening new reality. Think of the way in which cheap drones have transformed the modern battlefield, as demonstrated by the war in Ukraine. Now imagine swarms of low-cost drones deployed in war zones, powered by low-priced DeepSeek-style AI, able to coordinate attacks, evade defenses, and overwhelm traditional tanks and infantry platoons, all with unprecedented precision and scale. Military strategies that once relied on large arsenals and expensive hardware are vulnerable to disruption by nimble, cost-effective alternatives.
The unsettling truth exposed by the DeepSeek breakthrough is this: The traditional protections of industrial and military supremacy are far weaker than we thought.
The New York Sun calls this "The New Sputnik Moment." In 1957, the idea that the Soviets had rockets powerful enough to launch a satellite into orbit set off a national panic. The government organized the educational system to meet the "threat." A massive program to educate new math and science teachers, as well as new science-heavy curricula for schools, was the most visible response to what Washington referred to as "a crisis."
Exclusively for our VIPs: Palisades Nuclear Plant Looking to Be the First Shut-Down U.S. Nuclear Facility to Come Back Online
Part of the problem is the U.S. approach to innovation. The massive efforts by Big Tech to construct new, improved AI models are defeated by a small company that spent $6 million in R&D.
“It doesn’t matter where an idea comes from or who came up with it,” argues Taiwanese AI expert Kai-Fu Lee, whose firm Sinovation Ventures backs AI start-ups in China, in his book AI Superpowers. “All that matters is whether you can execute it to make a financial profit.”
Since the Second World War, the U.S. has been the world’s technology first-mover, pioneering the breakthroughs in semiconductors, space exploration, and computing that have driven social change and economic growth. China, playing catch-up, has mastered the art of scaling and refining these innovations. China’s companies often take a systematic approach to transferring, even copying, foreign intellectual property, a strategy of government-supported, industrial-scale espionage.
This was exactly the dynamic of Apple’s failed ambitions to build a long-range electric vehicle (EV) battery in partnership with Chinese automaker BYD. The project had the potential to expand the life of EV batteries everywhere. But last October, after seven years of research and development, Apple abandoned the project, while its partner BYD surged ahead with similar technology. BYD has now overtaken Tesla as the world’s largest maker of electric vehicles.
China has been playing the long game for decades. Forcing American firms to partner with Chinese firms in order to sell their goods, Chinese companies took the technology and improved it. No wonder American companies complained that they were giving a leg up to their future competition.
We can sit around, moan, and complain about how stupid we were and blame "the elites" and "the globalists," but what good does that do us now? Tariffs may be a good start, but much more is needed. We're now clearly in a war for the future supremacy of the United States in a global market.
And "participation trophies" don't mean squat.
Join the conversation as a VIP Member