Seeking Deep Meaning With DeepSeek
This week, DeepSeek, a Chinese AI competitor to technologies such as ChatGPT, announced they achieved similar performance, but without the use of the newest, very expensive NVIDIA sourced computer chips. Instead, these claims were made using older (2022 vintage), lower profit NVIDIA chips.
Being as NVIDIA stock has driven the performance of the S&P 500 over the last two years, this created quite a stir in companies who benefit from selling or packaging these extremely expensive chips.
Three days later, Alibaba and Baidu, both Chinese company’s, claim they have even better versions of AI.
As you can imagine, this news created volatility in the financial markets with NVIDIA taking the brunt of the downturn.
However, this story is multi-faceted and smart investors must understand there are many potential outcomes.
Obviously, there may be less demand for NVIDIA’s super chips which most likely slows their tremendous run of mega profits. But that doesn’t mean there is no demand for NVIDIA chips, just the most expensive ones. Currently, this is primarily an NVIDIA dilemma.
Furthermore, there are numerous benefits coming from these claims, assuming they are legitimate.
DeepSeek’s advancements in AI extend well beyond the tech sector. Potentially, it may drive innovation across many industries, including healthcare, finance, and transportation. However, as with any new efficient technology, the loss of jobs is ever-present, particularly those involving routine or repetitive tasks.
This story of technological revolution has been told many times throughout history. Consider early versions of big screen TV’s, the internet, cell phones and cable TV. Any new technology ushers in an age of excitement, with fat profits. This creates a goldrush mentality to whatever is exciting at that moment.
Years ago, I remember getting a screaming deal on a 42 inch TV for $800 (normally $1,200) on Black Friday. Today, Best Buy has a significantly better 42 inch TV for $179.
Like virtually every other technology that ever existed, they become commoditized and prices and profits come down. As this plays out, end consumers benefit from better functionality and lower prices.
Furthermore, any business currently paying up for fast computing power will eventually benefit from increased efficiency. Companies such as Accenture, Adobe, Intuit, Microsoft and NXPI already benefitted from the Chinese news as lower costs and technical implementation arrives.
The rest of the market should also benefit from lower implementation costs which speeds up adoption. In turn, this drives higher utilization of existing infrastructure and higher investment into processes and people.
In addition to this technology operating on less expensive computer chips, there are other less obvious benefits. There will be less need for land and data centers, not to mention, electricity. This results in less stress on the power grid.
Before concluding there is a paradigm shift in tech leadership, there are a few things to consider.
Although DeepSeek is an “open-sourced” code, it does not mean there has been meaningful analysis verifying its functionality. Most likely, this will happen soon.
Development of the same, or better, effectiveness from lower cost chips should usher in more competition, which lowers expenses and spurs innovation.
However, Chinese developed technology must be handled carefully. Just like TikTok, there are concerns the Chinese government will have access to, and control of, data produced by DeepSeek. The Chinese government will have direct access to everything you ever research. At the same time DeepSeek conducts censorship in real time. This limits the effectiveness of the AI to connect the dots and create meaningful inferences simply because many dots are missing.
For these reasons, the US Navy has already banned the use of DeepSeek. It is anticipated that other government agencies, such as the Department of Defense will implement a ban shortly. Like so many of today’s cutting edge tech, user beware.
Obviously, DeepSeek’s emergence could exacerbate tensions between China and the US, leading to potential trade disputes and other economic consequences.
Lastly, the rise of ChatGPT and other forms of AI have rapidly sprung up in the last two years. The speed of innovation changes daily. As such, there are no firm conclusions of who will win and who will lose. Rather, it will be shades of grey as to how different businesses and industries harness this technology to do more with less.