China’s DeepSeek impresses. But is a ‘fast follow’ good enough in AI?

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American stock markets shuddered on Monday, prompted by China’s announcement that it has created a capable, cheap, artificial intelligence machine. It’s the biggest cloud yet to darken the West’s blue-sky enthusiasm over AI, calling into question the efficacy of America’s export controls and the billions of dollars the United States is pouring into the technology’s expensive cutting edge.

China startup DeepSeek says its AI assistant uses less advanced chips than its rivals’ models do, and it costs less to train. Unlike the West’s billions, the Chinese model was developed for just $5.6 million, by one estimate.

“Are we going to spend $500 billion to get to the frontier so that China can find a way to copy our homework for pennies on the dollar?” asked Gregory Allen, director of the Wadhwani AI Center at the Center for Strategic and International Studies, on a podcast Friday.

Why We Wrote This

China’s latest tech company challenges investment strategies and notions about how much expertise is needed to succeed in artificial intelligence. If history serves, the market may soon see a dramatic winnowing of players in AI.

On Monday on Wall Street, leading AI company stocks fell hard. The price of Nvidia, the leader in AI chips, plunged about 17%, as rattled investors evaluated the prospect that Chinese players could threaten U.S. tech profits. The S&P 500 fell nearly 1.5%, and the tech-heavy NASDAQ fell 3%.

But experts cautioned against panic. It’s important not to overstate the Chinese threat, analysts say. DeepSeek’s new AI model is both genuine achievement and Beijing hype. It shows China’s ability to simplify U.S. models, creating a way for fewer and less powerful computer chips to deliver answers that rival America’s more expensive models. DeepSeek said last week that its latest model can compete with a version of OpenAI’s ChatGPT released four months ago.

In many ways, DeepSeek’s model parallels China’s “knock-off” manufacturing prowess. And in this case, DeepSeek has put its product on the public domain, which means anyone can use it for free. By Monday, it had become the top-rated free app on Apple’s app store.

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