DeepSeek's AI Disrupts Global Geopolitics
The Chinese AI DeepSeek has caused an earthquake within American tech. The geopolitical balance of power has just changed.
The Supremacy of DeepSeek
Deepseek is a Chinese startup founded in 2023 specializing in LLM AI (language model). Its R1 AI model matches the performance of Open AI’s o1, the recognized leader in the race for strong AI.
R1 outperforms o1 (chatGPT) in most coding, reasoning, mathematics tests, etc. Launched only a month and a half after Open AI’s o1, R1 has shaken the entire world for four reasons.
- Model creation cost 50 times lower.
- Cost per million processed data units 20 times lower.
- Total model creation cost under 6 million dollars (compared to 10 billion $ for OpenAI).
- The code for the R1 model is open source!
Deepseek uses a new method of training AI that requires less data. It is reinforcement learning. R1 learns and improves itself, unlike traditional supervised learning.
With 671 billion parameters, R1 is among the most imposing AI models for only 2.8 million hours of GPU training. Meta’s Llama 3, on the other hand, required 30.8 million GPU hours, which is 11 times more.
Even better, while the o1 AI was trained with the NVIDIA H100 GPU, DeepSeek uses the NVIDIA H800, a downgraded version of the H100 (U.S. embargo). All this was done with a team of fewer than 200 people, not thousands.
Being open source, anyone can install R1 at home. However, it will require fairly powerful hardware, needing an investment of about 6,000 euros. Perfect to protect your privacy…
Moreover, while using Open AI’s o1 (online) costs 200 dollars per month, R1 is free. For professional and specialized use, the price per million processed data unit is 97% lower!
Bloodbath in NY Stock Market
China has taken the lead in the AI race, and the stock market crash in the United States confirms this. The American semiconductor manufacturer Nvidia has lost nearly 600 billion $ in market capitalization (-20%). This is the largest daily loss in the history of the US stock market. This loss represents the equivalent of the value of LVMH, Total Energies, and BNP Paribas combined.
In total, 1,000 billion have already gone up in smoke if we include the falls of Microsoft, Meta, and others. Is the AI bubble about to burst?
Partly fulfilled objective for the 14th Chinese five-year plan, which prioritized AI and semiconductors. The next five-year plan (2025-2030) aims for 20% annual growth in the AI sector. It will represent 1,000 billion yuan in 2030 (139 billion $)
ASML claims to have 15 years of lead in semiconductor manufacturing. We’ll see… Managing to reproduce the next machine is the only obstacle to China’s technological supremacy:
Concern is palpable across the Atlantic. Donald Trump has threatened TSMC with killer tariffs. However, TSMC manufactures over 90% of the most advanced chips (3 nm). It is about pressuring them to prevent their delivery of high-performance GPUs to the Chinese rival to slow its advancements in the AI field.
But is it already too late? DeepSeek’s seemingly superior performance suggests that the American strategy of technological embargo is failing and has even backfired, forcing China to innovate even more rapidly.
AI and Military Supremacy
AI is so important that it could alter the balance of geopolitical power. The think tank RAND argues that “nations around the world may see their power increase or decrease depending on how they develop artificial intelligence (AI) “.
Indeed, AI promises those famous productivity gains without which the fiat Ponzi becomes an inflationary rush of debt. That said, your servant remains skeptical. The economy is primarily a matter of energy. An autonomous truck will always need energy to move, regardless of the AI steering it. AI will not change the face of the world.
On the other hand, AI greatly disrupts the way wars are fought. American generals are aware that China’s new AI capabilities could give it an asymmetric military advantage.
From autonomous warfare (drones, robots) to cyber defense, nations with a head start in the AI race will have a certain military advantage. Just look at the Ukrainian conflict and the use of AI-boosted drones to be convinced. AI reshapes the art of war. Today, the ability to analyze and exploit the largest amount of data in real-time can compensate for a numerical disadvantage on the battlefield.
The Ukrainian Minister of Digital Transformation Mykhailo Fedorov claims: “We are here today as a kind of training ground for the use of artificial intelligence “.
Decision support, autonomy of weapon systems, intelligence gathering, logistics, cybersecurity, it’s all there. AI can offer superiority in many areas.
Taiwan between the Hammer and the Anvil
The potential advantages created by AI result in international tensions manifesting as embargoes that the United States uses to maintain its competitive edge.
Restrictions on the export of advanced AI chips and machines used to manufacture them are multiplying. Hence China’s (successful) efforts to avoid becoming dependent on technology supplied by hostile competitors.
That said, there is still a long way to go. The technological gap in the physical manufacturing of chips remains significant.
The situation should therefore remain difficult for Taiwan and South Korea, which have a monopoly on the manufacturing of advanced semiconductors like TSMC and Samsung. These two countries face the challenge of maintaining trade relations with both the West and China while protecting their own economic interests.
Goldman Sachs has identified several second-tier players heavily invested in AI and thus likely to have a say in the international geopolitical arena. This includes the UK, the United Arab Emirates, Israel, Japan, the Netherlands, South Korea, Taiwan, and India.
Taiwan is probably the country with the most to lose if tensions between Washington and Beijing reach a point of no return. The worst-case scenario would be that the United States forces Taiwan to stop selling any chips to China.
Xi Jinping could then be tempted to invade Taiwan, which would bring us even closer to a third world war…
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Bitcoin, geopolitical, economic and energy journalist.
The views, thoughts, and opinions expressed in this article belong solely to the author, and should not be taken as investment advice. Do your own research before taking any investment decisions.