Trump may be best bet to take on China’s DeepSeek

China has shown the world that it’s now game on in the artificial intelligence race, sending markets into a massive tailspin and sparking a new wild west.

More than $US580bn was wiped from the market value of Jensen Huang’s Nvidia after its shares tumbled 17 per cent on Monday – the biggest drop since March 2020 – while the Nasdaq has shed almost 3 per cent.

Australian tech stocks were also hit, with Data Centre operator NextDC falling as much as 7.8 per cent and investigations software company Nuix – which has been rebuilding itself around AI – diving 16.3 per cent on Tuesday morning.

What sparked the sell-off isn’t the fact that China’s DeepSeek AI model that is almost on par with America’s best. Investors are anxious given Chinese developers did so for a mere $US5.6m. This compares with OpenAI spending more than $US100m to train ChatGPT, which was launched in 2023.

If China can do it so cheaply, then this spells bad news for the likes of Nvidia, maker of the most advanced AI chips – technology that China is banned from accessing.

On this score, it is Silicon Valley’s turn to be disrupted. China has already upended the automotive industry after it surpassed Japan as the world’s leading exporter of vehicles by volume, rattling carmakers like Honda and Nissan, which now plan to merge to combat the new threat.

Now with DeepSeek, that disruption appears to be happening almost at the speed of light, catching the West’s best and brightest on the hop.

Or so Beijing would like the world to think.

It’s now time to take a breath.

Much of what has been reported on DeepSeek are untested claims. The exact cost of development and energy consumption of DeepSeek are not fully documented.

And some analysts are starting to call the proverbial BS on DeepSeek’s claims. “DeepSeek DID NOT build Open AI for $US5m,” Stacy Rasgon of Bernstein wrote in a note to investors.

Others have been more tempered, saying the launch of DeepSeek is the natural evolution of AI.

“DeepSeek is not a game changer, and on the contrary fits very well with the way we have now seen the industry evolving in the last three years,” Pierre Ferragu of New Street Research wrote to investors.

Indeed, Donald Trump foresaw this threat last week when he launched Stargate – a massive AI venture that aims to maintain the US’s dominance of the technology.

Trump’s project – backed by Larry Ellison’s Oracle, Masayoshi Son of Japan’s SoftBank, and OpenAI chief Sam Altman – committed an extraordinary $US500bn to build out a network of data centres and the energy infrastructure to power all the computing brute force needed to run generative AI models.

The sceptics – or those rattled by DeepSeek – will say why is such an investment necessary, given China appears to achieve the same result so cheaply, if its claims are true?

The answer is because, like in the space race between the US and Russia, more capital – not less – is needed.

As Ferragu said: “increased competition rarely reduces aggregate spending”.

The so-called Magnificent Seven tech stocks – which have been belted around by DeepSeek’s launch – have committed about $US200bn on AI investment this coming year. That’s across all kinds of infrastructure, from data centres, chips, research as well as energy.”

Microsoft – the shares of which sank 4 per cent on Monday – will be the first of the big tech companies to report its quarterly earnings on Thursday morning (Australian time). Investors will be looking to see how DeepSeek’s launch will affect its investment plans.

But Trump was clear about the motivation for a project like Stargate: “China’s a competitor, and others are competitors. We want it to be in this country.”

It’s going to be a wild ride. Trump has already rescinded a Biden executive order that had bound US companies too much to government red tape. Those companies are no free of those bounds to go forth and innovate - and crucially take on China.

We’re entering uncharted territory, akin to the wild west. The most important question is what role do we want AI to play in Western democratic societies? Will it be artificial intelligence, augmenting our own, or in the case of DeepSeek ‘autocratic intelligence’ becoming another arm of China’s communist regime?

So buckle up – it’s now game on in earnest.