The Chinese AI startup DeepSeek has put Silicon Valley’s AI titans into “panic mode”, says Parmy Olson in Bloomberg. They’ve spent years persuading investors that only vast quantities of money could keep the competition at bay: OpenAI recently raised a record $6.6bn venture capital round; Meta plans to spend $65bn on AI this year alone. Suddenly, this is looking like a “giant waste”. DeepSeek’s latest model uses relatively unsophisticated chips and cost just $6m to train. (For the latest ChatGPT model it was more like $100m.) Yet as far as the average user is concerned, the Chinese upstart is as good as the most expensively trained American AIs. And unlike its US rivals, it’s entirely free for individual users and very cheap for businesses. The results have been stark: on Monday, $1trn was wiped off Western AI stocks. On the same day, DeepSeek was the most downloaded free app on the iPhone.

Donald Trump was for once not guilty of hyperbole when he called DeepSeek a “wake-up call”, says Larry Elliott in The Guardian. For decades, US and European firms have assumed that China’s Marxist-Leninist system would forever stifle innovation, and so happily outsourced production to Chinese assembly lines. That turns out to have been “too complacent a view”. In 2023, China filed more patents than the rest of the world put together; Chinese universities turn out more than twice as many STEM PhDs as their US equivalents. As DeepSeek shows, China has a growing cadre of very bright people perfectly capable of innovating when they are allowed to do so, as they have already in lithium-ion batteries, electric vehicles and social media (ever heard of TikTok?). Now they’ve done it in AI. For America’s self-satisfied tech barons, this is a “Sputnik moment”.

🤩🤳The real winners in all this are consumers, says The Economist. For AI to transform the economy, it needs to be cheap, out of the control of any one country or company, and easy for developers to turn into tools people want to use. “DeepSeek’s success suggests such a world is imaginable.” Take the UK, where Keir Starmer wants to use AI to boost productivity. If he doesn’t have to pay some Silicon Valley magnate most of those efficiency gains back in fees, he stands a much better chance of succeeding.

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