Tuesday, January 28, 2025

Bill Bonner, "Mag Seven Deep Sixed"

Chinese AI firm Deep Seek (whose logo is a whale) 
arrives in San Francisco Bay bearing gifts for Silicon Valley
"Mag Seven Deep Sixed"
by Bill Bonner

"More investment does not necessarily lead to more innovation."
- Liang Wenfeng, Founder of company that created DeepSeek

Baltimore, Maryland - "We’ve got a good idea where the Big Loss will come from.  This month, a bombshell hit the whole cluster of AI-enhanced capital values.  As Dan reported, AI chips - the foundation of Nvidia’s $3 trillion market cap - suddenly face an unexpected competitor.  The Daily Beast: "Chinese AI Upstart Sparks $1 Trillion Market Rout After Trump Hyped AI Megadeal." "A Chinese artificial intelligence startup’s latest AI model spooked markets Monday, leaving U.S. and European technology stocks on track for a $1 trillion wipeout, a week after President Donald Trump threw his weight behind a $500 billion private sector investment in AI infrastructure."

DeepSeek is the product of $6 million, not billion (in rented GPU hours), of investment by Chinese entrepreneur, Liang Wenfeng.  Despite spending $200 billion a year to dominate the AI space, the four leading US tech giants - Microsoft, Amazon, Meta, and Alphabet - have let Wenfeng steal a march on them. 

Typically, a bubble attracts its own pin.  By trying to contain Chinese innovation, the Trump/Biden administrations seem to have sharpened its point.  And now, it heads straight for those tech oligarchs standing in the second row during Trump’s inauguration.   Now valued at $17 trillion, collectively, the Magnificent 7 were already headed for trouble.  That’s what normally happens.  Bubbles deflate.  Peaks lead to valleys. And new technology is always followed by newer technology.

But this time, Palo Alto might soon resemble Gaza City.  Seeking Alpha: "Major averages tumbled on Monday as concerns about the AI rally ramped up in the face of buzz about China AI startup DeepSeek, sparking a risk-off move. Early on and the Nasdaq Composite was -2.7%. AI names like Nvidia (NVDA) and Super Micro Computer (SMCI) were down more than 10%. "

What could you expect?  Protectionism and containment lead to decay and backwardness, not to growth and progress. Despite US efforts to stop then, China’s chip exports have actually gone up for 14 consecutive months.   Forced to experiment, they developed new tactics and new technology.  Forbes: "US export controls on advanced semiconductors were intended to slow China’s AI progress, but they may have inadvertently spurred innovation."

Over at The Unz Review, the report is even more alarming: "In a matter of days, the news of China’s AI sensation, DeepSeek Ri, has gone from a gentle breeze to a Force 5 hurricane.  The ‘capital of tech’ has moved from ‘Palo Alto to Hangzhou,’ says Unz: "It’s clear now that no one in Silicon Valley or Washington DC had the slightest idea that their world was about to be turned upside-down by an innovative new product that would shift the geopolitical plates further eastward. In short, the agenda is being set by people with different priorities, values and beliefs who live 10,000 miles away."

Venture Beat: "Unlike o1 (Open AI) which is available only to paying ChatGPT subscribers of the Plus tier ($20 per month) and or expensive tiers (such as Pro at $200 per month), DeepSeek R1 was released as a fully open source model, which also explains why it has quickly rocketed up the charts...everyone in AI is freaking out about DeepSeek."

The sell-off in tech may be ‘overblown,’ says Barrons. The deeper challenge, though, is probably under blown. Republic World: "Chinese Universities Surge Ahead of MIT, Oxford, Stanford, Caltech. Harvard University retains the top position in the Nature Index, but the rest of the top ten spots are dominated by Chinese institutions."

Last week, Trump announced $500 billion to be invested in Stargate AI – to ‘secure American leadership’ and ‘elevate humanity’. It’s already looking like money down the drain."

No comments:

Post a Comment