A Chinese company’s latest artificial intelligence technology has sent shock waves through the AI-industrial complex in the United States this week.
In recent years, U.S. companies OpenAI, Google, Meta and Anthropic have dominated leaderboards for cutting-edge AI. Microsoft, Amazon and Nvidia have led in cloud and specialized AI hardware. To play in this league, a war chest of billions of dollars has been required.
Now, DeepSeek, the AI division of a Chinese hedge fund and a (relatively) much smaller company, has released large language and reasoning AI models whose performance is comparable to the best-in-class AI models in the United States.
DeepSeek’s AI breakthrough appears plausible
According to the company, they did not use high-end GPUs (artificial intelligence chips), and the computing bill was estimated to be only $5.6 million, a fraction of of the hundreds of millions reportedly spent by OpenAI and other U.S.-based leaders.
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Expert and industry reactions to these claims ranged from skepticism to shock and awe. Based on the details in the technical reports from DeepSeek, this breakthrough, prima facie, seems plausible.
Making available such an advanced AI model with a permissive open source license (almost giving it away for free) throws a wrench into the pricing strategies of commercial AI vendors, which have to recoup their massive upfront investments.
It could also mess up many Americans’ 401(k) plans.
For the Chinese government, DeepSeek is an inspiring David to Big Tech’s Goliath: local teams educated at top Chinese universities innovating against odds, delivering step-change cost reduction, open sourcing the latest AI models and publishing their methods for others to leverage.
Don’t be surprised if such open source AI is branded as a digital version of the Belt and Road Initiative and a tool of Chinese soft power: AI solutions for the world, including developing nations, at a fraction of the cost.
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US companies still lead in AI development
To be clear, this development does not dethrone the United States as the global leader in artificial intelligence, but it narrows the gap between America and China. It requires the U.S. government to urgently reassess AI policies. It also poses serious questions to U.S. AI companies about their competitive moats and the economics of commercial AI and requires them to refocus strategies and investments.
These questions are important not only for policy wonks, tech moguls and venture capitalists ‒ but also are relevant for everyday Americans whose 401(k) accounts might take a big hit if American AI leadership is not maintained.
Consider that 62% of adult Americans (including 80% of Americans 55 and older) invest in stocks.
The S&P 500 returned 23% last year. Without the “Magnificent Seven” technology companies (Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla – all significant AI players), it would have been a lot less.
It is not surprising that around the world, the initial stock market reaction to DeepSeek has been brutal.
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In response to this disruption, there are a few initiatives on which the U.S. government and industry leaders can focus. The federal government, private equity, venture capital and other investors are pouring billions of dollars into AI.
Last week, the Trump administration brought OpenAI, Oracle and Softbank together for an event to announce an initial $100 billion investment in AI computing centers, codenamed Stargate. The scale of these investments might need a recalibration.
Notwithstanding these big initiatives, much policymaking has been left to the courts. High stakes lawsuits are snaking their way through the judiciary. Before these cases are decided, the federal government should provide clarity on regulation.
The United States also needs to resist stamping out open source AI. If the U.S. government does that, it risks ceding space to China and others. Let’s not forget that open source lets U.S. AI companies take advantage of DeepSeek’s new advances in this round.
Next, there is the issue of whether U.S. export controls are serving their purpose. Indeed, Nvidia sells H800 chips, which are the slower versions of the H100 chips that Washington has restricted the company from selling to China.
The U.S. government must assess whether another round of export controls on the best semiconductor chips would be effective. Better enforcement against smuggling of GPUs may be in order. Ironically, AI will be helpful here.
Generative artificial intelligence, while important, is only one tool in the AI solutions portfolio. Generative AI is crowding out other AI investments, like biomechanics and robotics. By leveraging U.S. research institutions and academic centers, these areas can be prioritized and grown.
A talent strategy, even one encompassing immigration issues, needs to be seriously considered as well. David Sacks, the new AI czar, and the Trump administration should consider devising an interim plan while fleshing out a longer-term vision that was mandated last week in an executive order.
The U.S. leadership position on artificial intelligence needs to be protected, not just because this technology is transformative for the future and geopolitically critical. Also at stake are the AI industry’s strength in the United States and the financial health of millions of Americans.
Kashyap Kompella is founder of RPA2AI Research, an AI analyst firm. James Cooper is a professor of law at California Western School of Law in San Diego. Their recent book is “A Short and Happy Guide to Artificial Intelligence for Lawyers,” and their next book with West Academic Publishing is about AI governance and regulation.
