DeepSeek threatens monopoly of tech giants in 'arms race' to leading AI, expert says

An expert stated that the Chinese company DeepSeek, after developing a model with lower costs and using lower-quality systems, is threatening the monopoly of tech giants in the artificial intelligence (AI) "arms race." DeepSeek's release of its AI model named R1 yesterday led to the largest single-day loss ever on Wall Street, with a market capitalization evaporation of $593 billion (approximately AUD 943 billion).

The U.S. tech giant Nvidia, a supplier of AI system chips, saw its stock price fall by one-sixth. Other AI-related companies, such as Google and Microsoft, also experienced stock declines. DeepSeek stated that the cost of R1's API is $0.88 per million input tokens and $3.49 per million output tokens, compared to OpenAI's o1 API costs of $23.92 and $95.70, respectively, meaning DeepSeek's costs are 20 to 50 times lower than its competitors. Furthermore, DeepSeek's electricity expenditure on AI is only $8.9 million.

Geoff Webb, a professor and research director in the Department of Data Science and AI at Monash University, said, "Currently, participating in the development of core AI systems requires billions of dollars in investment. If DeepSeek's claims are true, it means that core technology is more accessible to a wider range of people than previously thought." Webb likened the intense competition among tech giants to develop the most powerful AI to an "arms race," adding that DeepSeek's achievement may be credible.

Webb explained, "All participants in the arms race are tight-lipped about the internal details of what they are doing. We do not know the exact inputs used to train these systems, nor the exact processes they have undergone. We cannot be certain that this latest development is not the result of massive Chinese investment, but it is quite plausible that they have found cheaper methods. They have benefited from the previous experience of U.S. companies and have also gained access to many tools developed by the research community."

DeepSeek's CEO, Liang Wenfeng, is also the co-founder of the hedge fund and AI company High-Flyer, which accumulated 10,000 Nvidia A100 graphics processing chips. The U.S. subsequently banned the supply of these chips to China. However, DeepSeek stated that its recent model was built using Nvidia's lower-performing H800 chips, which are not banned in China. DeepSeek claims that despite lower costs and the use of lower-quality chips, R1's capabilities are comparable to OpenAI's ChatGPT o1 model.

Webb stated that this poses a "very real threat" to Nvidia's profitability. He also said, "This means that AI technology companies do not have the exclusive control over the technology as previously thought, so they are losing some of their monopoly, and costs are also significantly reduced." This also raises serious questions about the investment and equipment required to develop AI models. Microsoft signed a 20-year agreement last year to restart the Three Mile Island nuclear power plant to meet the power demands of its AI data centers. OpenAI has also raised $10.5 billion from investors. Meta recently announced plans to spend up to $103 billion to expand its AI infrastructure.

Webb stated that tech giants will be researching how to reduce their own costs. He said, "DeepSeek has not yet reached the level of leading AI players, but this shows that they are not as far ahead as previously thought." R1 was hailed by Marc Andreessen as the industry's "Sputnik moment." Marc Andreessen, one of the world's leading tech investors, who previously advised U.S. President Donald Trump on technology policy, has warned that excessive U.S. regulation of AI will allow China to take the lead. Trump told members of Congress yesterday that DeepSeek's R1 release should serve as a "wake-up call" for the industry.

Trump said, "We need to focus on competing and winning because we have the greatest scientists in the world."