Will DeepSeek be Silicon Valley's Sputnik?

A new AI language model has disrupted the markets, causing American companies to lose billions daily. However, DeepSeek's effect might be much more profound and longer.

The launch of the AI model challenged the notion that American companies controlled the market and the US was the clear winner of the AI arms race.

US restrictions partly influenced how DeepSeek was made: using software engineering to help it run with less processing power. Still, the company behind it also took advantage of a loophole.

In 2022, the Biden Administration conditioned manufacturers to throttle chip speed before exporting to China. Nvidia created a chip that complied but was almost as fast as its top models: the H800.

According to the Wall Street Journal, the company sold those chips for a year, a long enough window for DeepSeek to buy enough. Then, the US Government changed the regulations to avoid those exports.

However, as the administration changed, the future of those regulations is uncertain. Most of the industry, including Nvidia, opposed them. Their view might be different now.

"Hopefully, the release of DeepSeek AI from a Chinese company should be a wake-up call for our industries," President Trump said of DeepSeek's irruption, as quoted by the WSJ.

The new administration sees tech giants as allies and vital components of economic growth. The privileged positions of Silicon Valley CEOs in the inauguration were an indicator.

Still, the relationship is not just symbolic. The Trump Administration is planning billionaire investments in building data centers alongside OpenAI and other tech companies.

"We need to be laser-focused on competing to win because we have the greatest scientists in the world," President Trump concluded. His approach is radically different from his predecessor's.

According to the WSJ, the Biden Administration hoped to win the AI war with export controls, federal standards, and subsidies for chipmaking. However, this strategy backfired because companies like Nvidia were not on board.

President Trump is taking a different approach: decreasing regulations and pushing investments. Still, it is uncertain whether he will keep Biden-era programs that bipartisan lawmakers credit.

New York Times columnist Kevin Roose describes DeepSeek as an eye-opener for Silicon Valley. "It appears to be throwing into question several major assumptions the American tech industry has been making," he wrote.

The first, Roose argues, is that companies must invest billions to create AI models. DeepSeek's approach was cheaper; it took it from billions to millions. Their model was also simpler.

Roose said the second assumption is that bigger is always better in AI. DeepSeek showed that relatively small models can perform as well as those by large companies.

It is too early to tell how much the irruption of DeepSeek will change Silicon Valley's star technology or if it will be their sputnik, as many industry leaders argued.

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