by Mish Shedlock, Mish Talk:
Technology stocks are hammered today over AI concerns and a failure of US export bans.
China’s DeepSeek AI Models Raise Doubts
The Wall Street Journal reports China’s DeepSeek AI Models Raise Doubts Over U.S. Tech Dominance
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Global chip stocks slumped Monday after Chinese artificial-intelligence company DeepSeek said it had developed AI models that nearly matched American rivals despite using inferior chips, raising questions about the need to spend huge sums on advanced gear provided by Nvidia and other tech giants to train AI models.
DeepSeek said last week that the performance of its latest R1 model was on par with OpenAI’s o1-mini model that the ChatGPT maker released in September. The announcement came after DeepSeek said in a late-December report that it used a cluster of more than 2,000 Nvidia chips to train its other V3 model, compared with the tens of thousands of chips that are normally used for training models of a similar size.
The company said training one of its latest models cost $5.6 million, compared with the $100 million to $1 billion range cited last year by Dario Amodei, chief executive of AI company Anthropic.
“There is a new AI challenger in town and investors are spooked at what they’ve discovered,” AJ Bell investment director Russ Mould wrote in a note to clients. “Its assistant is free to use and runs off lower-cost chips and less data—implying a major challenger to the established AI names in the West.”
DeepSeek’s perceived success risks intensifying the AI war between the U.S. and China, Quilter Cheviot’s Ben Barringer said in a note to investors, particularly after the recent announcement of Stargate—a joint venture between OpenAI, SoftBank Group, Oracle and MGX to build data centers in the U.S. for OpenAI.
News Corp, owner of Dow Jones Newswires and The Wall Street Journal, has a content-licensing partnership with OpenAI.
Is AI Spending Justified?
AI spending is just one of the concerns that Sends U.S. Tech Stocks Reeling.
The sudden popularity of a Chinese artificial intelligence model called DeepSeek pummeled stocks Monday, with the tech-focused Nasdaq composite index down 2.7 percent in morning trading.
Several tech companies that have banked on a surge of AI interest sold off, with U.S. chipmaker Nvidia down more than 12 percent at the opening bell. Microsoft lost around 3.5 percent, Meta Platforms lost 1.6 percent, and Oracle dropped more than 7 percent.
Analysts said the sell-off underscores anxieties about whether the massive spending on artificial intelligence ― and the specialized chips, data centers and related power infrastructure ― are justified. Nvidia has exploded in value in recent years because it dominates the market for the chips at the center of the global AI race. It’s now one of three companies with a market capitalization above $3 trillion.
But some analysts have raised questions about how soon those investments will translate into straightforward moneymaking use cases for U.S. companies. The emergence of a low-cost Chinese competitor adds to skepticism over those investments.
The emergence of the model from China has escalated concerns about the U.S. adversary’s tech prowess amid a global race to develop advanced artificial intelligence. China’s advancements in the technology are viewed as a national security threat to the United States, and the success of DeepSeek has only exacerbated those concerns.
DeepSeek is a China-based start-up that last week launched a free AI assistant that it says can operate at a lower cost than American AI models like ChatGPT. The company was founded in 2023 by Liang Wenfeng, co-founder of the hedge fund High-Flyer. By Monday, it had rocketed to the top of downloads in the Apple Store.It also reported outages and limited registrations due to “large-scale malicious attacks” amid the uptick in interest.
President Donald Trump has said that the United States needs to remain competitive with China in developing artificial intelligence, and he appeared focused on the technology during his first week in office. He told reporters Saturday that he was considering using emergency powers to provide the “tremendous energy” that U.S. companies need to develop AI models.
We’re already leading,” Trump said on Air Force One. “Very shortly, we’re going to be leading by a lot.”
Longtime technology investor Marc Andreessen, a Trump ally, called DeepSeek’s AI model “one of the most amazing and impressive breakthroughs I’ve ever seen” and “a profound gift to the world” in a post on X.
Leading tech firms have spent billions building out artificial intelligence technology for sale to large businesses. Meta chief executive Mark Zuckerberg said in a Facebook post last week that his company plans to invest between $60 billion and $65 billion on AI and build a massive data center. OpenAI, Oracle and SoftBank recently announced a Trump-supported joint venture, called Stargate, that seeks to spend up to $500 billion building out data centers to support AI projects.
China’s DeepSeek Turns AI on its Head
Sherwood reports China’s DeepSeek turns AI on its Head
DeepTrouble
The weekend buzz around the large language model — the fact that it “thinks” before it speaks, shows its workings, and matches OpenAI’s most powerful model, the o1, on a range of metrics — seems to have left much of Silicon Valley wowed and worried, in almost equal measure.