China's DeepSeek AI Moves The Capital Of Tech From Palo Alto To Hangzhou

In a matter of days, the news of China’s AI sensation, DeepSeek R1, has gone from a gentle breeze to a Force 5 hurricane. It’s clear now that no one in Silicon Valley or Washington DC had the slightest idea that their world was about to be turned upside-down by an innovative new product that would shift the geopolitical plates further eastward. But that, in fact, is what has happened. And it’s not simply because DeepSeek’s latest version matches or exceeds the performance of America’s best model, OpenAI; but because it is cheaper, more accessible and more transparent. This is AI for everyone regardless of their station or income. And its sudden emergence from ‘out of the blue’ has cast doubts on the ability of western tech giants to anticipate the capability of their competitors or to lead an industry that is essential for Washington to preserve its ever-loosening grip on global power. Here’s a brief recap from Venture Beat:

….thanks to the release of DeepSeek R1, a new large language model that performs “reasoning” similar to OpenAI’s current best-available model o1 — taking multiple seconds or minutes to answer hard questions and solve complex problems as it reflects on its own analysis in a step-by-step, or “chain of thought” fashion.

Not only that, but DeepSeek R1 scored as high or higher than OpenAI’s o1 on a variety of third-party benchmarks…, and was reportedly trained at a fraction of the cost…, with far fewer graphics processing units (GPU) under a strict embargo imposed by the U.S., OpenAI’s home turf.

But unlike o1, which is available only to paying ChatGPT subscribers of the Plus tier ($20 per month) and more expensive tiers (such as Pro at $200 per month), DeepSeek R1 was released as a fully open source model, which also explains why it has quickly rocketed up the charts of AI code sharing community Hugging Face’s most downloaded and active models. 

- Why everyone in AI is freaking out about DeepSeek, Venture Beat

“Freaking out” is probably the understatement of the century. Silicon Valley is in a full-blown emotional meltdown and the path forward is far from certain. As we will see further along, western tech mandarins are going to have to return to Square 1 and modify their approach to the new reality. In short, the agenda is being set by people with different priorities, values and beliefs who live 10,000 miles away. They do not ascribe to the idea that advances in technology should reinforce police-state surveillance or other repressive forms of social control.(as they do in the West) Their vision of the future is altogether different, but invariably optimistic.

Did you notice that “DeepSeek R1 scored as high or higher than OpenAI’s o1 (while) under a strict embargo imposed by the US”?

In other words, these Chinese whiz-kids created their cutting-edge version with one hand tied behind their back. They shrugged off Washington’s onerous sanctions and beat Uncle Sam at his own game, which is quite an accomplishment. (Forbes: “U.S. export controls on advanced semiconductors were intended to slow China’s AI progress, but they may have inadvertently spurred innovation.”) Here’s more:

thanks to the fact that it is fully open source, people have already fine-tuned and trained many multiple variations of the model for different task-specific purposes such as making it small enough to run on a mobile device or combining it with other open-source models. Even if you want to use it for development purposes, DeepSeek’s API costs are more than 90% cheaper than the equivalent o1 model from OpenAI. 

- Why everyone in AI is freaking out about DeepSeek, Venture Beat

Cheaper, more adaptable and more transparent. Is there more? There is:

Most impressively of all, you don’t even need to be a software engineer to use it: DeepSeek has a free website and mobile app even for U.S. users with an R1-powered chatbot interface very similar to OpenAI’s ChatGPT. Except, once again, DeepSeek undercut or “mogged” OpenAI by connecting this powerful reasoning model to web search — something OpenAI hasn’t yet done…

- Why everyone in AI is freaking out about DeepSeek, Venture Beat

Is the author right; are the tech-honchos and their moneybags allies “freaking out” over DeepSeek or do they see it as a minor glitch on the road to AI supremacy? Here’s how he answers that question:

A message posted to Blind… has been making the rounds suggesting Meta is in crisis over the success of DeepSeek because of how quickly it surpassed Meta’s own efforts to be the king of open source AI with its Llama models.

It sounds like a lot of people are very concerned, and for good reason. DeepSeek is a nuclear bomb detonated in the heart of Silicon Valley. It is a straight-up challenge to America’s de facto Royal Family of tech Brahmins who thought their reign would last forever. Now they find themselves playing ‘catch-up’ with an upstart cadre of bluestocking brainiacs who are bringing their world crashing down around them. More importantly, the future of AI is being decided in Hangzhou not Palo Alto which means we might see a lull in the warmaking as Uncle Sam finds it harder to finance his endless bloodletting. What a welcome reprieve that would be.

The author of the above piece even quotes one of my favorite analysts on X, Arnaud Bertrand, an invaluable source of unbiased information about developments in China. Here’s what he said:

“There’s no overstating how profoundly this changes the whole game. And not only with regards to AI, it’s also a massive indictment of the US’s misguided attempt to stop China’s technological development, without which Deepseek may not have been possible…”

Yep, the whole semiconductor embargo-thing backfired spectacularly illustrating once again that we are ruled by incompetent lamebrains who love to punish people for violations to rules they make up on-the-fly. Just look at the mess these ‘geniuses’ have made.

We’ll end with Bertrand’s insightful critique of Trump’s $500 billion Stargate boondoggle which will be obsolete before they even break ground:

Stargate, if it goes forward, is likely to become one of the biggest wastages of capital in history:

1) It hinges on outdated assumptions about the importance of computing scale in AI (the ‘bigger compute = better AI’ dogma), which DeepSeek just proved is wrong.

2) It assumes that the future of AI is with closed and controlled models despite the market’s clear preference for democratized, open-source alternatives

3) It clings to a Cold War playbook, framing AI dominance as a zero-sum hardware arms race, which is really at odds with the direction AI is taking (again, open-source software, global developer communities, and collaborative ecosystems)

4) It bets the farm on OpenAI—a company plagued by governance issues and a business model that’s seriously challenged DeepSeek’s 30x cost advantage.

In short it’s like building a half a trillion dollars digital Maginot line: a very expensive monument to obsolete and misguided assumptions. This is OpenAI and by extension the US fighting the last war.
Arnaud Bertrand @RnaudBertrand

Or, as Jim Fan said: the … future of AI is democratization…. It’s the tide of history that we should surf on, not swim against.…Jim Fan @DrJimFan

Indeed, it is.