Did China Just Drink Our Milkshake?

China has released a brand new artificial intelligence model. It’s called DeepSeek, and some people are comparing this Chinese technical advancement to Russia’s Sputnik moment back in 1957 when Russia launched a satellite into orbit, shocking America’s technological cadre.

DeepSeek is an artificial intelligence company that was trained on chips far less sophisticated than the Nvidia chips that have been the driver of the AI revolution.

To review: Artificial intelligence has progressed tremendously over the course of the last three to four years. For example, ChatGPT is basically good at virtually everything, and it is only one step removed from being able to progress even further in the real world.

You can prompt ChatGPT, for instance, to put together a travel itinerary for any location on the globe. Right now, a “book” button is only visible, but soon, it will be active; you will be able to actually book. It is going to change how we do our jobs in many different industries.

It was assumed that America had a massive lead in the AI industry. Why? Because AI works with incredible levels of data to use very sophisticated microchips, typically created by Nvidia and then produced at TSMC, which is an actual semiconductor factor in Taiwan.

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Firms like META have been investing billions of dollars into AI, OpenAI, and Google. All of these various companies have been spending billions of dollars buying these Nvidia microchips that are designed to process huge quantities of data because that’s how AI actually works — to crunch as much data as humanly possible.

It works through a matrix that determines which words in any given sentence are the most important, and then it predicts what the next word in a sentence is going to be. This is why you can prompt ChatGPT to write a joke about a duck in the style of Charles Dickens.

It does all that simply by cramming extraordinary amounts of data, which takes enormous amounts of energy and numbers of sophisticated microchips. 

At least, that’s what everyone thought — until a little bit earlier this week. China released DeepSeek, which is apparently just as sophisticated as ChatGPT but costs a fraction of the cost to produce. Instead of using Nvidia sophisticated microchips, it uses less sophisticated microchips.

That’s the reason why Nvidia, which had been moved up to a trillion-dollar market cap and had grown massively in the last three or four years, dropped almost 20% in the stock market because suddenly it appears the barrier to entry in AI has dropped precipitously as well.

It is less expensive than was originally thought to develop a very sophisticated AI. This is why a huge number of stocks that were tied into American AI dropped as well.

There’s a much more competitive sphere now.

It’s quite possible that AI was being overvalued, that all of these various companies were being overvalued, that the situation resembles the tech bubble in the late 90’s, that a huge amount of money is being invested into AI. But it’s not clear how much revenue is actually going to be generated by AI in the real world.

This happens very often when new technology creates a speculative bubble. The market tends to wipe out a lot of the speculation. What then remains are the long-lasting gains from the technology.

The dot-com bubble, for example, did not end the internet. Instead, the dot-com bubble was created by enthusiasm for an entirely new wave of products, and it turned out that a lot of that enthusiasm was put in the wrong places. But it didn’t mean the internet didn’t transform life. It did.

And the same thing is going to be true of AI.

A lot of the current, highly valued stocks may be overvalued at this point. Many of these companies that were assumed to have an oligopoly and enormous power in the air market may not have as much power as they thought.

America needs to win the battle for AI.

DeepSeek monitors all your data. DeepSeek is doing the same thing as all other various Chinese companies: mining your data to an extraordinary extent, the same way TikTok is a Chinese psyop that is designed to draw enormous amounts of American data to it.

DeepSeek’s user agreement admits, “We automatically collect certain information from you when you use the Services, including internet or other network activity information such as your IP address, unique device identifiers, and cookies. We collect certain device and network connection information when you access the Service.”

President Trump spoke on Monday and stated that the news regarding DeepSeek was “a wake-up call for our industries that we need to be laser-focused on competing to win.”

After praising American scientists, he said the situation could be “very much a positive development. … Instead of spending billions and billions, you’ll spend less and you’ll come up with hopefully the same solution. Under the Trump administration, we’re going to unleash all our tech companies and we’re going to dominate the future like never before.” 

This is correct. When the cost of actually being able to participate in this market goes down, more innovation and competition will ensue, which is good.

But if we are in competition with China, which we certainly are, then we need to be using every resource at our disposal and not hamstringing our ability to compete with the Chinese by putting tariffs on semiconductors, which drives up prices for precisely the companies we need to actually outcompete the Chinese on this basis.

American ingenuity nearly always wins in the end.

It just needs to be turned loose.