US Blows AI Lead in Race With China

OpenAI rival DeepSeek has sent a sobering message to Washington and Silicon Valley, showcasing China's erosion of the U.S.'s lead in a critical tech battleground.

Such has been its impact that one prominent venture capitalist has described it as "AI's Sputnik moment" and a scientist told Newsweek that "China has basically caught up to the U.S." in the field of generative AI.

Newsweek contacted DeepSeek, OpenAI and the U.S. Department of Commerce's Bureau of Industry and Security for comment via email.

Why It Matters

DeepSeek, a little-known company in Hangzhou, China, said its DeepSeek-R1 AI model, which burst onto the scene last week, was trained in two months for less than $6 million and using fewer chips. The app rode the buzz, becoming the most downloaded free app not only in China but also on the Apple Store in the U.S.

The U.S. previously tightened restrictions on the export of advanced semiconductors used for cutting-edge technologies, such artificial intelligence, to prevent them from falling into China's hands, citing national security risks.

What To Know

DeepSeek's new model has been touted as being on par with publicly available American models, even outperforming OpenAI's GPT-4, Anthropic's Claude Sonnet 3.5 and others in certain areas.

Chipmaker Nvidia's shares plunged 17 percent on Monday, wiping out $589 billion in market value in the largest one-day market cap loss in history.

The sell-off contributed to the Nasdaq Composite's $1 trillion plummet, as investors reacted to the Chinese breakthrough and its potential effect on U.S. tech dominance.

Venture capitalist Marc Andreessen called DeepSeek-R1 "AI's Sputnik moment" in a post on X, formerly Twitter, a reference to the Soviet satellite launched in 1957 that kicked off Moscow's Space Race with the U.S.

What Is DeepSeek AI?

DeepSeek AI is the brainchild of Liang Wenfeng, a former hedge-fund manager who transitioned to AI development in 2023. The platform's flagship model, DeepSeek-R1, was launched this January and quickly climbed to the top of the U.S. Apple App Store, surpassing ChatGPT in downloads.

DeepSeek's appeal lies in its free-to-use model for consumers, underpinned by its R1 reasoning engine. This is said to integrate reinforcement learning to achieve high performance with minimal computational resources.

DeepSeek originated as Fire-Flyer, a branch of High-Flyer, Liang's hedge fund. The progress of DeepSeek has partly been credited to the company's unorthodox solutions to geopolitical challenges.

For example, U.S. export controls in October 2022 threatened to severely curtail Chinese development of AI. However, DeepSeek had stockpiled 10,000 of Nvidia's H100 chips and used the stockpile to continue work, though the export controls remain a challenge, according to Liang.

How Does DeepSeek AI Compare to ChatGPT?

Unlike OpenAI, which charges $20 to $200 per month for its services, DeepSeek offers its platform for free to individual users and charges only $0.14 per million tokens for developers. This stark contrast has made DeepSeek popular with small businesses and developers.

DeepSeek-R1 claims to rival OpenAI's o1 model in reasoning and mathematical problem-solving. The platform's ability to generate Python code more effectively than ChatGPT has been a highlight in discussions among tech enthusiasts on communities like Reddit.

This chart, provided by Statista, shows the estimated price for processing one million input/ output tokens on different AI models.

What People Are Saying

Gary Marcus, a cognitive scientist and an author of Rebooting.AI, told Newsweek: "Nobody has landed on the moon yet, or will they soon, but China has basically caught up to the U.S. in the flawed and faddish techniques of generative AI."

Alexandr Wang, the CEO of Scale AI, an artificial intelligence firm in San Francisco, wrote on X: "DeepSeek is a wake up call for America, but it doesn't change the strategy. The USA must out-innovate & race faster, as we have done in the entire history of AI. Tighten export controls on chips so that we can maintain future leads. Every major breakthrough in AI has been American."

Senate Minority Leader Chuck Schumer wrote on X: "The DeepSeek announcement from China has been called by some AI's "Sputnik moment" for America ... Our competitors are going to use every single opportunity they get to overtake the US's lead on the technologies of the future. We have to lead the way."

What Happens Next

On Monday, President Donald Trump called the DeepSeek app a "wake-up call" and called on U.S. industries to be "laser-focused on competing to win."

The U.S. is set to pour an enormous amount of resources into AI as it seeks to regain its lead. On January 21, the president announced the Stargate Project, dubbing it the "largest AI infrastructure in history."

OpenAI and fellow tech companies Oracle and SoftBank have committed to investing $100 billion into the initiative, which is expected to create 100,000 jobs and receive a total of $500 billion in the coming years.