DeepSeek caused a $600 billion freakout

Jeremy Kahn. Fortune. Jan 27, 2025.

AI has fueled Nvidia’s extraordinary rise to a $3 trillion market valuation. But on Monday, AI was the cause of a panic among Nvidia investors, sending its shares down almost 17% and wiping out nearly $600 billion in value.

The selloff was triggered by Chinese AI startup DeepSeek, whose latest V3 and R1 AI models appear to rival the best of any U.S. company, while having been trained at a fraction of the cost. Since Nvidia’s powerful graphics processing units are one of the biggest costs of developing the most advanced AI models, investors are suddenly, and radically, questioning their assumptions about the AI business.

While there still many unanswered questions about how DeepSeek developed its models, the upstart is clearly shaking up the AI market. The prognostications of Nvidia’s doom may be premature however. So too may be claims DeepSeek’s success mean the US should abandon policies aimed at curtailing China’s access to the most advanced computer chips used in AI.

Top of the line GPU

DeepSeek has said it has access to 10,000 of Nvidia’s older generation A100 GPUs—chips that were obtained before the US imposed export controls that restricted the ability of Chinese firms to buy these top-of-the-line chips. It has also mentioned training V3 on Nvidia’s H800 chips, a chip Nvidia sells in China that is designed specifically to comply with US export controls.

Either way, that is orders of magnitude less processing power than what U.S. companies typically use to train their most advanced AI models. For instance, Elon Musk’s Xai built a computing cluster, called Colossus, in Tennessee, that has 100,000 of Nvidia’s more advanced H100 GPUs.

What’s more, DeepSeek’s R1 model, an AI model it created to do well on math, logic problems, and coding, and which is designed to challenge OpenAI’s o1 “reasoning” model, is small enough to run on a laptop, where the primary processing power comes from a conventional central processing unit (CPU), rather than requiring access to many GPUs running in a datacenter.

It’s not just investors who have seized on this news. Critics of U.S. export controls on advanced computer chips have pointed to DeepSeek’s success as evidence that the trade restrictions aren’t working. Some even argued the export restrictions have backfired—meant to hobble China’s AI companies and keep them from catching up to the US, they have instead forced Chinese AI researchers to develop clever ways to make AI models that are much more efficient in their use of computer power.

“China’s achievements in efficiency are no accident. They are a direct response to the escalating export restrictions imposed by the US and its allies,” Angela Zhang, a professor of law at the University of Southern California and author of a book on Chinese tech regulation, wrote in an op-ed in the Financial Times last week. “By limiting China’s access to advanced AI chips, the US has inadvertently spurred its innovation.” AI skeptic Gary Marcus also echoed these arguments on his blog on Sunday.

Cheaper AI means more AI

Both these emerging narratives could prove shortsighted. That’s because DeepSeek’s impact could, counterintuitively, increase demand for advanced AI chips—both Nvidia’s and those being developed by competitors. The reason is partly due to a phenomenon known as the Jevons Paradox.

Named for 19th Century British economist William Stanley Jevons, who noticed that when technological progress made the use of a resource more efficient, overall consumption of that resource tended to increase. This makes sense if the demand for something is relatively elastic—the falling price due to the efficiency improvement creates even greater demand for the product.

Jevons Paradox could well come into play here. One of the things that has slowed AI adoption within big organizations so far has been how expensive these models are to run. This has had made it hard for business to find use cases

Episode 3947 - Jan 28 - Tiếng Anh - DeepSeek gây ra sự hoảng loạn 600 tỷ đô la - Vina Technology at AI time

Vina Technology at AI time - Công nghệ Việt Nam thời AI

Episode 3947 - Jan 28 - Tiếng Anh - DeepSeek gây ra sự hoảng loạn 600 tỷ đô la - Vina Technology at AI time