The skinny on DeepSeek

U.S. tech stocks are plummeting as China looks to be exposing American companies involved in AI as wildly overvalued. It’s a predictable consequence of how the American government has approached Silicon Valley and vice versa. This isn’t the kind of thing we normally cover, but we don’t quite trust the U.S. media to tell this story accurately.

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Lina Khan, as chair of the Federal Trade Commission under former President Joe Biden, became a folk hero as she warned that greed and consolidation weren’t just harming consumers and workers, but that the sclerotic companies themselves would eventually suffer from the lack of competition. “Our history shows that maintaining open, fair, and competitive markets, especially at technological inflection points, is a key way to ensure America benefits from the innovation these tools may catalyze,” Khan said in 2023.

Now it’s become clear that the moat the U.S. built to protect its companies from domestic competition actually created the conditions that allowed them to atrophy. They got fat and happy inside their castles. Their business pivoted from technological innovation to performing alchemy with spreadsheets, turning made-up metrics into dollar valuations detached from reality. Now DeepSeek has exposed the scam. With a tiny fraction of the resources, and without access to the full panoply of U.S. chip technology, the Chinese company DeepSeek has pantsed Silicon Valley.

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DeepSeek is ironically fulfilling OpenAI’s original mission by providing an open-source model that simply performs better than any in the market.

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Meanwhile here in the United States, Trump is celebrating a (possibly exaggerated) $500 billion investment in Texas to fuel AI computer power that appears to be made obsolete—or much less relevant—thanks to DeepSeek’s innovation. And Trump is stacking his administration with crypto bros, tech moguls refusing to divest, and even launched his own scam meme coin. Trump’s senior tech advisers like Elon Musk meanwhile have extensive commercial ties directly with China. You don’t have to squint too hard to see which of these countries is going to win this competition.

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It’s common to say that most people don’t own individual stocks, but that understates the exposure we all have to this scam. It’s in our IRAs or 401ks and the rise of those stocks made up nearly all of the growth of the stock market in recent years.

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Big tech companies have also been telling the government and investors that building AI is very very expensive. In his first week in office, U.S. President Donald Trump has announced $500 billion in private sector investment in AI under a project called Stargate—a collaboration between OpenAI, Softbank, and Oracle.

In the past OpenAI founder Sam Altman has claimed that he would need as much as $7 trillion to create his dream AI and was raising investment using that target. For context, no man in the entire history of the world has ever spent that amount of money on a single thing. But the underlying message seems to be: this is a magical technology and a force more powerful than any the world has ever seen, we need astronomical amounts of money to build it and we need the protection of the U.S. government while doing so.

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[DeepsSeek] used $5.5 million worth of computational power.

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They released the DeepSeek-V3 model last month, a model that outperforms OpenAI GPT-4 and all other models in the industry in most benchmarks. There isn’t any significant development in the basic technology, they just use hardware efficiently and train their model better.

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DeepSeek has released its model and training methods as open source software, meaning anyone can see how they made their model and replicate the process. It also means that users can install DeepSeek models on their own machines and run them on their own GPUs, where they seem to be performing very well.

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“The accusations/obsessions over DeepSeek using H100 sound like a rich kids team got outplayed by a poor kids team, who weren't even allowed shoes,” tweeted Jen Zhu, an AI investor, “and now the rich kids are demanding an investigation into whether shoes were used instead of training harder to improve themselves.”

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The social contract struck between the U.S. government and Silicon Valley—which the American people became an involuntary party to—was straightforward: We will let a handful of tech bros become unfathomably wealthy and in exchange they will build a tech industry that keeps America globally dominant. Instead, the tech bros broke the bargain. They took the money, but instead of continuing to innovate and compete, built monopolies to keep out competition—even getting the help of the U.S. national security state to block Chinese access to our tech. But they couldn’t keep out of the competition forever. Lina Khan was right. And now here we are.

  DropSite

Can we get our $500 billion back, or is that just up in smoke? Rhetorical question.

I'm waiting to see what outlandish retribution Trump comes up with.

...but hey, do what you want...you will anyway.

UPDATE 02/03/2025: