Chinese Firm Disrupts Big AI With DeepSeek

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Originally published at: https://peakprosperity.com/chinese-firm-disrupts-big-ai-with-deepseek/
There has been something of a massive bubble in AI stocks of late. If you haven’t noticed, then you have been busy doing more productive things with your life than tracking the latest Fed-inspired tech bubble.

What happened? ChatGPT came out not that long ago, took the world by storm, raised $6 billion in capital, hired thousands of very bright people, and set about building larger and larger AI models.

Each new iteration was exponentially larger than the last. The computing power required was exponentially larger. For a variety of complicated reasons, the chipset company Nvdia had a corporate moat built upon its chips combined with its software and superior means of linking thousands of units together into a cohesive whole.

For a truly comprehensive and brilliant deep dive into the entire subject, may I point you to this article?

(Source)

This allowed Nvdia to charge obscene amounts of money for its products, scoring super fat 90% margins (75% overall once their gaming cards had dragged that down). The US decided the best Nvdia chipsets, the H100’s, were too competitively important to allow other countries such as China to buy them and so limited exports.

Enter China. After deciding that financialization wasn’t in its best overall interest (very smart) some of China’s Quant funds opted to deploy their talent elsewhere and one of them put a few of its clever coders to work to develop AI from the bottom up.

Constrained by the H100 limitation, they set about trying other clever approaches. Necessity is indeed the mother of invention, as they proved in startling fashion.

Without going into all the complexities, and they are well beyond my capability to understand, the summary is that they made an AI product that absolutely crushed the competition in terms of performance vs price.

The training for their model cost a reported $5 million, vs $100 million for OpenAI’s ChatGPT versions.

Unlike “Open” AI, the DeepSeek team made their discovery freely available to all by making it open source.

Its model can self-check and self-improve and uses a reported 45 times less computational power to turn in performance results that match all of the very best and largest and most expensive US AI models.

(Source)

This is being downplayed by some who aren’t coping well with the Chinese leapfrogging as “clever, but not really new.” Well, given none of the US, Silicon Valley, super-expensive models do this, I am going with ‘clever and new.”

As if that weren’t bad enough, they just announced the same thing with an image generation AI tool called Janus Pro 7B, besting OpenAI’s DALL-E 3 and Stable Diffusion.

(Source)

The shocks to the system took a while to develop but I guess Wall Street analysts finally had some free time this weekend and stock futures gapped down on Sunday night leading to Monday’s Nasdaq rout.

My best definition of a bubble is that one exists when asset prices rise beyond what incomes can sustain. Nvidia’s more than $3.5 trillion market capitalization rested upon the belief that it had an impenetrable corporate moat. Nobody would be able to beat it, not for a long while, and their practice of pouring earnings back into R&D would keep them safely ahead of the pack.

But then along came the Chinese team and the moat turned into something of a muddy puddle.

Okay, welcome to the turbulent world of technology which is nothing if not a long unbroken tale of disruptors disrupting things.

While this fits that mold, we have to consider the extreme bullishness that had driven Nvidia to a valuation larger than the entire stock market capitalizations of France and Germany combined.

Bigger AI models were going to need more chipsets, and more data centers, and more power. More, more, moar!

Now all of that has suddenly been turned on its head.

Already Microsoft has pulled a $3.3 billion data center.

Power company stocks are getting absolutely smashed.

Grok, the AI at “X,” tells me that the cumulative market cap of the leading AI companies is around $16 trillion. What if that gets cut in half, which would be light for a bursting bubble? That $8 trillion loss would match the total market cap meltdown of the Great Financial Crisis of 2008-2009.

Could another such GFC be brewing here? Yes, and that brings us to Part II, where we need to discuss the features of bursting bubbles and what this means for the incoming administration’s plans, hopes, and dreams.

The short version is, bursting bubbles really suck, especially for the unprepared. If your wealth isn’t adhering to a risk-managed strategy, then I wish you the very best of luck. Bubbles make mince meat out of passive strategies. They always have, and they always will. No, this time will not be different
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I’ve been playing around with DeepSeek v1. It’s quite good. The reasoning tokens are very interesting as it solves technical problems, and I think that sets it apart from o1 and Claude (3.5 Sonnet).

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You are fast! Please continue to share your findings!

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I personally think these centers are primarily about population control so the rollout plan should continue as planned if not accelerate because of deep seek.

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Example from just a few minutes ago … it’s almost like watching a software engineer think:

Screenshot_20250127_202100
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That image of Theranos Sam will be in my nightmare tonight. I already know this.

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Yeah. Sorry about that.

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Deep State- “What did China do?”
“Roll out the China lab leak acknowledgment “

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Trumps response to Deepseek seems pretty rational

https://x.com/tsarnick/status/1884024846230896756

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Chris’s point about Trump dunking on himself with the tec sociopaths new AI mRNA vaccines stands though. It’s stands and makes me want Trump ‘On the stand’ with these goons to explain their plan to depopulate us. First one to tell us lives.

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Well this is quite the buzzkill. Since ChatGPT changed my '64 Martin D18 via its serial number to a '51 D18, increasing its value by 10k, I was hoping an AI data center powered by a small nuke could change my CEO-5 slope shoulder (hey, I’m a chop-free Martin snob, what can I say?) from sapelle back & sides to Brazilian rosewood. But, no. AI had to crash. Crap balls.

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Did anyone ask this thing if the Covid “vaccines” were safe? The Western ones lie, right?

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:joy:

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Bloom Energy is going to come back. It was on a spectacular run, it needed a reason for a fear correction. I closed my covered calls for massive profit. Just holding the shares and selling calls when it starts running hot (like it was).

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The DeepSeek story sends me down a different pathway. The fact that China was able to produce it so quickly and so inexpensively raises the “why?” question.

Lined up next to it is the unexpected consequence to the US that has come from suspending Tik Tok: Americans have apparently flocked to Chinese alternative social media site RedNote. Now I’m seeing Youtube after Youtube of young Americans realizing that what they’ve been told about China’s economic backwardness compared to the West is obviously not true. Rather, by interacting with actual Chinese people they’re getting to see how amazingly modern China has become.

I find the fact that Americans have such outdated perspectives on China to be in itself instructive. Our disconnection from reality outside the US/West bubble is a problem; it feeds our falsifiable sense of “exceptionalism”, and feeds into the neoconism that looks determined to continue through the Trump Administration, to the detriment of global peace and development, for sure, but mostly to the detriment of the West, which will consequently continue to sideline itself from the emerging opportunities to join cooperatively in the global development of more equitable prosperity and vastly more prosperous, hyper-modern living standards. We are stagnating; China is leading the way into the Tomorrowland that Disney theme parks hinted at 50 years ago.

So now a slew of increasingly desperate young adults are discovering that China provides affordable, high-tech, modern and comfortable housing, that healthcare is free and better than in the US and Western Europe, that public transportation is clean and fast, streets are safe at night, very few people are homeless or hungry, shops are full and abundant, and Chinese phones and EVs are better than those produced in the West. The Western narrative cracks and scales begin to fall from the eyes of Americans who have been taking it on the chin to feed a system that doesn’t feed them. It becomes increasingly, glaringly obvious that life is not better in the West than in the East.

I line that up next to the Ukraine Surprise - the unexpected discovery by Western “experts” that Russia has a much more resilient economy than anticipated. The “gas station dressed up as a country” narrative has been shredded, even though to my utter amazement we’ve got incoming Trump Administration officials who still, beyond all probability, believe it! Even Trump appears to believe that he can sanction Russia into compliance. I’m gobsmacked by it all, but here we are. Bolton might be gone, but not his ideology-driven stupidity. That’s alive and well across the Deep State.

The West dismissed, and so missed, the technological developments that allow Russia to send swarms of variously purposed drones into the theater of battle, that produced true hypersonic missiles - of several kinds - while the West is still trying to sketch one out with crayons, and radar systems that poke holes in Western stealth technology and see more clearly over the horizon. All of that while, meanwhile, filling Russia’s stores with prodigious quantities of food and other goods, expanding economic infrastructure, and significantly growing Russia’s military numbers and materiel. In the West, meanwhile, it is becoming increasingly difficult to fill recruitment goals because so many Westerners are physically unwell due to the overabundance of fiat food, lack of exercise, and our decreasing quality of health care, which fewer can afford anyhow, year by year. Over a third of new recruits - that’s new recruits - enter the Army with a disability that exempts them from full time active duty. And a growing number of health-compromised adults join the military specifically so that they can retire almost immediately on a medical discharge, which entitles them to a lifetime supplemental income stream.

What the hell is going on here?

Russian economist, economic historian, and socio-economic philosopher Sergey Glazyev anticipated all of this decades ago. Glazyev’s theory of history is widely read throughout the non-Western world, and his thinking has guided dozens of countries’ policies. Most notably, China, India, and Russia. Each has applied Glazyev differently - in a manner suitable to their own social needs and cultural sensitivities - but all three, alongside many smaller countries, accept Glazyev’s basic perspective on economic history and the role of state level governments in the emerging digital world.

The gist of Glazyev’s perspective is that capitalism replaced mercantilism because it was a more efficient means of allocating societal wealth in the once-emergent age of industrialization. But capitalism is highly inefficient for the current emergent age of digitalization and high tech innovation and application of automated intelligence to productivity. For that, he says, the State needs to take up the function of coordinating the dreams and desires of its people so to allocate social resources to relevant problem identification and problem solving through efficient R & D.

The result is now tangible in Russia and China. And increasingly in India, and in other Eastern countries. It is beginning in pockets of Africa, where it will rapidly build out over the coming decades, in part through knowledge-sharing by those three large countries, through a growing basket of new international organizations focused on economic and political development, non-extractive investment programs, international conflict mediation, and forums and conferences focused on shared problems that emphasize finding practical approaches and solutions.

While in the West the focus of economic philosophy and practice is maximizing profit, in the East - and increasingly in the Global South - the emphasis is on maximizing results, working as economically efficiently as possible, for the common good.

Understanding that throws light on Russia’s ability to vastly outproduce the West’s military industrial complex, and to find solutions to battlefield issues almost in real time, neutering each new weapon introduced by NATO into the Ukraine theater. It also explains China’s leapfrogging NVidia’s touted lead in chip tech-fueled AI, and then to simply give it away to the world.

Giving it away means China not only hurts the US economy, and damages the Western mythos of technological dominance, but also provides the rest of the world with a tool that is genuinely useful for every nation’s development. A tool flexible enough, cheap enough, and energy efficient enough for most every country to adopt it and adapt it to local needs.

Most significantly, to my eyes: it is another signal that China wants to work cooperatively with the world’s peoples on shared development that mutually benefits the whole of earth’s population. They keep saying that. The US and Western Europe keep dismissing those statements as cheap propaganda hiding an inscrutable agenda to control the globe. A goal only avoidable if the world’s governments reaffirm the increasingly outdated and moribund ideology and hegemony of the doddering West, with its dying globalist dream.

I find the open source release of the DeepSeek program fascinating in itself, along with the story of how quickly and inexpensively it was produced. But what it illustrates about the economic and political ideology that has made it possible to develop the program so quickly and cheaply, and conceivable to simply give it away as a gift to humanity (the way Benjamin Franklin once gave away the rights and plans to the Franklin Wood Stove) - that is the real news.

It is a lesson that falls on the mostly deaf ears of the tone-deaf Westerner, and it’s being downplayed and dismissed by Western Exceptionalism’s pundits and politicians. But it is being heard across the planet, and that’s what actually matters.

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I think that data housing will be required regardless of which brain is AI-ing the info.

A reduction of resources required for the super computers will increase the use of them and the data centers will be increased accordingly.

These supercomputers need something to “think” about to be useful.

If China or someone else comes out with a reduced energy and more compressed data storage strategy then that’s another story. Perhaps next week, 2025 seems to be running out of the gate after all.

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Heres another thing off about “Stargate”…Star = Starlink…that mesh of satellites ordinary people cant touch…like we can spray paint surveillance cameras.
Gate = prison Gate…it slams shut there is no escape.

These people are telling us what they have in store for us.

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Ah hell i want fuckenberg to pull his natural gas powered data center…please God.

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An excellent essay, as always, VT.

Perhaps instead of the CCP restricting access to its citizens to an international RedNote, it is the West that will clamp down on this cultural exchange for fear of the envy, discontent, and eroding sense of exceptionalism of its blinkered populations.

“Fiat food”! That’s great.

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