Chinese Lab's AI LLM Performance Shocks Silicon Valley

By Riaz Haq
CA

According to US media reports, a Chinese lab has sparked panic in Silicon Valley with the release of its first AI model that can outperform America's best despite being built more cheaply and with less powerful chips. The lab called DeepSeek has recently unveiled a free, open-source large-language model (LLM) that it says took only two months and $5.5 million to build, using reduced-capability chips from Nvidia called H800s.

In comparison, the US-based OpenAI's closed LLM model cost $100 million to develop and train using the most advanced H100 chips from Nvidia. Open-source and free DeepSeek models can significantly help developing nations like Pakistan by providing affordable access to the latest AI technology, allowing them to develop solutions tailored to their specific needs without high costs. 

DeepSeek, a small startup lab in China, has accomplished this feat despite the US technology export controls to slow down China's AI efforts. Former Google CEO Eric Schmidt is now acknowledging that China has narrowed or closed the AI technology gap with the United States. 

In 2022 America banned the export of advanced chips to China, according to  Economist magazine . Nvidia, a leading chipmaker, has had to design special downgrades to its products for the Chinese market. America has also sought to prevent China from developing the capacity to manufacture  top-of-the-line chips  at home, by banning exports of the necessary equipment and threatening penalties for non-American firms that might help, too. 

The slower H800 chip was created by Nvidia to comply with export regulations that prevent the chipmaker from selling its high-end GPUs to China. Apparently, the limits imposed by Washington on Chinese engineers' access to the most advanced Nvidia chips forced them to develop a much more efficient model to achieve the same performance as their US counterparts.  Other Chinese tech companies ranging from Alibaba and Huawei to TenCents are also working on their own multiple AI models, including LLMs. 

DeepSeek has emerged from High-Flyer, a Chinese hedge fund set up in 2015 to use AI to gain an edge in stock trading. Conducting fundamental research helped High-Flyer become one of the biggest quant funds in the country, according to The Economist.

(Riaz Haq is a Silicon Valley-based Pakistani-American analyst and writer. He blogs at www.riazhaq.com)