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Decoder with Nilay Patel
DeepSeek, Stargate, and the new AI arms race
We're back with The Verge senior AI reporter, Kylie Robison. Before the break, we were talking about some of the early panic reactions to DeepSeek and why it's become such a big deal in such a short amount of time. Part of that has to do with its capabilities, but a lot of it has to do with its cost.
Decoder with Nilay Patel
DeepSeek, Stargate, and the new AI arms race
DeepSeek wouldn't exist without a lot of the foundational technology developed here in the United States, including open source advancements by Meta with its Lama models and by OpenAI technology as well, which AI startups worldwide have been reverse engineering for some time now. on Tuesday in what's a pretty funny twist.
Decoder with Nilay Patel
DeepSeek, Stargate, and the new AI arms race
OpenAI even began to complain that its intellectual property was violated, telling the Financial Times that it has evidence that DeepSeek used its models to train its own with a technique known in the AI world as distillation.
Decoder with Nilay Patel
DeepSeek, Stargate, and the new AI arms race
Of course, OpenAI scraped the entire web without permission to train its initial models, so it's pretty hard to complain that its models have now been ripped off, but that's the world we live in.
Decoder with Nilay Patel
DeepSeek, Stargate, and the new AI arms race
Regardless, DeepSeq is proof that the closed-sourced approach to AI, the one that's most advantaged OpenAI up until now, is not as much of a head start as anyone once believed, or built a sky-high valuation around. If a startup spun out of a Chinese hedge fund can do this with so little time and resources, well, maybe there's no moat around these frontier models at all.
Decoder with Nilay Patel
DeepSeek, Stargate, and the new AI arms race
Hello and welcome to Decoder. I'm Neil Apatow, Editor-in-Chief of The Verge, and Decoder is my show about big ideas and other problems. Today, we're talking about the only thing the AI industry and pretty much the entire tech world has been able to talk about for the last week.
Decoder with Nilay Patel
DeepSeek, Stargate, and the new AI arms race
It's still very early, and there's no definitive takeaway on how DeepSeq might affect the AI industry over the long term. According to Kiley, the major decline in NVIDIA's share price might be much more about the market correcting an obviously overvalued stock than it is about the industry losing faith in the effectiveness of NVIDIA chips.
Decoder with Nilay Patel
DeepSeek, Stargate, and the new AI arms race
In her reporting this week, she says experts told her DeepSea could actually benefit the larger model makers because they'll be able to replicate the efficiency gains on future reasoning models like O1 and R1. This is why everyone keeps talking about Jevons paradox, an economic concept that everyone seems to have learned about the past several days that hopefully explains everything.
Decoder with Nilay Patel
DeepSeek, Stargate, and the new AI arms race
Basically, it means that making a resource cheaper will lead to increased consumption of that resource. Think of it a little bit like engines and gasoline. If you make an engine more fuel efficient, it uses less gas. So it's cheaper to run, which means you might run it more and eventually use more gas than you were using to begin with.
Decoder with Nilay Patel
DeepSeek, Stargate, and the new AI arms race
DeepSeek, the AI model built by a Chinese hedge fund that's completely upended the conventional wisdom around bleeding edge AI models, what they can do, and importantly, how much they should cost to develop. DeepSeek, if you haven't played with it, is expressed a lot like ChatGPT. There's a website and a mobile app, and you can type into a little text box and have it talk back to you.
Decoder with Nilay Patel
DeepSeek, Stargate, and the new AI arms race
My friend Ben Thompson of the newsletter Stratechery made a similar argument, writing this week that DeepSeek, quote, provided a massive gift to nearly everyone and that the biggest winners are consumers and businesses who can anticipate a future of effectively free AI products and services.
Decoder with Nilay Patel
DeepSeek, Stargate, and the new AI arms race
According to Thompson, quote, a world of free AI is a world where product and distribution matters most, unquote. And as we talk about here on Decoder quite a bit, distribution is where big consumer tech companies like Apple and Google still have the most advantage because they control the phones and the app stores.
Decoder with Nilay Patel
DeepSeek, Stargate, and the new AI arms race
What is pretty obvious now, even if we don't know exactly what future outcomes will occur because of DeepSeek, is that the AI cost structures we've been operating under are going out the window. The big debate in AI last year was about diminishing returns.
Decoder with Nilay Patel
DeepSeek, Stargate, and the new AI arms race
And if AI companies were hitting a scaling wall that was growing steeper all the time, and whether that would result in shrinking gains between new releases, no matter how many GPUs we threw at the problem. For instance, we might never see the type of performance jump we saw between GPT-2 and GPT-3 ever again.
Decoder with Nilay Patel
DeepSeek, Stargate, and the new AI arms race
But if DeepSeek has proven anything, it's that there's much more to AI advancement than just building the biggest supercluster, buying the most GPUs, and throwing all your money into a furnace.
Decoder with Nilay Patel
DeepSeek, Stargate, and the new AI arms race
We need to take another quick break. We'll be right back.
Decoder with Nilay Patel
DeepSeek, Stargate, and the new AI arms race
What makes it special is how it was built. On January 20th, DeepSeek released a reasoning model called R1, which came just weeks after the company's V3 model, both of which showed some very impressive AI benchmark performance. It quickly became clear that DeepSeek's models perform at the same level, or in some cases even better, than the competing models from OpenAI, Meta, and Google.
Decoder with Nilay Patel
DeepSeek, Stargate, and the new AI arms race
We're back with Verge Senior AI Reporter Kylie Robson. Before the break, we were discussing what the longer-term impacts of DeepSeq might be on the AI industry and why it's not exactly doom and gloom for the frontier model makers. In fact, according to Kylie's reporting, many of those companies might be able to benefit from the efficiency gains DeepSeq has accomplished.
Decoder with Nilay Patel
DeepSeek, Stargate, and the new AI arms race
There's no reason to believe right now that AI models won't continue to get bigger and more sophisticated at the cutting edge, something that will necessarily require those companies to keep buying more NVIDIA GPUs and building bigger data centers.
Decoder with Nilay Patel
DeepSeek, Stargate, and the new AI arms race
Jan LeCun, who has met as chief AI scientist and often one of the first people in the industry to call bullshit on popular narratives, says the deep-seek freakout is, quote, woefully unjustified and based on, quote, major misunderstandings about AI infrastructure investments.
Decoder with Nilay Patel
DeepSeek, Stargate, and the new AI arms race
He pointed out that when AI companies and tech companies today say they're going to spend billions of dollars, a good chunk of that money is going towards inference or using the models and not just training them. And total inference costs are only going to increase as multimodal AI with video and audio becomes more popular.
Decoder with Nilay Patel
DeepSeek, Stargate, and the new AI arms race
And no matter what, maintaining those models once they've been trained and serving them to millions of customers costs quite a lot. Assuming that just because you can train a model cheaply doesn't mean you can run inference on it at the scale OpenAI, Google, and Anthropic do. In other words, we might need those chips and data centers after all.
Decoder with Nilay Patel
DeepSeek, Stargate, and the new AI arms race
And if all that compute isn't being used for AI, well, it might get used for something else.
Decoder with Nilay Patel
DeepSeek, Stargate, and the new AI arms race
And they're totally free to use. But here's the real catch. While OpenAI's GPT-4 reportedly cost as much as $100 million to train, DeepSeek claims that it cost less than $6 million to claim R1. In a matter of days, DeepSeek went viral. It became the number one app in the United States. And on Monday morning, the controversy over its underlying economics punched a hole in the stock market.
Decoder with Nilay Patel
DeepSeek, Stargate, and the new AI arms race
But that doesn't mean it's smooth sailing for OpenAI and Stargate. The timing of DeepSeat going viral almost immediately after the Stargate announcement has thrown some serious cold water on OpenAI's claims that it needs a half-trillion-dollar data center project to stay competitive.
Decoder with Nilay Patel
DeepSeek, Stargate, and the new AI arms race
I asked Kylie about this specifically and about whether OpenAI, with its constant concerns about cash flow, can really pull this off. And most importantly, whether they have anywhere near the amount of money they're claiming to need.
Decoder with Nilay Patel
DeepSeek, Stargate, and the new AI arms race
On Tuesday, after a full day of utter chaos in the world of AI and more than a trillion dollar wipeout in tech stocks, Sam Altman posted an unassuming selfie with Microsoft CEO Satya Nadella on his ex-account. It was the kind of post that I now think of as classic Altman. Short, ambiguous, easy to confirm any assumption you already had.
Decoder with Nilay Patel
DeepSeek, Stargate, and the new AI arms race
Altman captioned the post, quote, the next phase of the Microsoft open AI partnership is going to be much better than anyone is ready for. He included two exclamation points just in case.
Decoder with Nilay Patel
DeepSeek, Stargate, and the new AI arms race
To me, this was clearly meant as a signal to showcase to the world that Microsoft, despite the deep-seek noise and a pattern of keeping OpenAI at arm's length in recent announcements and public appearances, was still on board the Altman AGI train. But we don't actually know how any of this will impact Stargate.
Decoder with Nilay Patel
DeepSeek, Stargate, and the new AI arms race
Thank you. Thank you. Decoder is a production of Verge and part of the Vox Media Podcast Network. Our producers are Kate Cox and Nick Statt. Our editor is Ursa Wright. Decoder Music is by Breakmaster Cylinder. We'll see you next time.
Decoder with Nilay Patel
DeepSeek, Stargate, and the new AI arms race
Panicked investors wiped more than a trillion dollars off tech stocks in a frenzied sell-off earlier this week, and Nvidia in particular suffered a record stock market decline of nearly $600 billion when it dropped 17% on Monday.
Decoder with Nilay Patel
DeepSeek, Stargate, and the new AI arms race
That's because for more than two years now, tech executives have been telling us that the path to unlocking the full potential of AI was to throw GPUs at the problem to spend money. Since then, scale has been king.
Decoder with Nilay Patel
DeepSeek, Stargate, and the new AI arms race
And scale was certainly top of mind less than two weeks ago when OpenAI CEO Sam Altman went to the White House and announced a new project called Stargate that he claims will spend $500 billion building data centers around the country to supercharge OpenAI's ability to train and deploy new models.
Decoder with Nilay Patel
DeepSeek, Stargate, and the new AI arms race
Altman's claim is essentially that you need to spend a lot of money to train AGI, or artificial general intelligence, however that is defined. And once you achieve AGI, however that's defined, the productivity gains across the economy will more than justify the enormous investment. DeepSeek, on the other hand, might be evidence that you don't have to spend all that money.
Decoder with Nilay Patel
DeepSeek, Stargate, and the new AI arms race
and that the United States export controls of NVIDIA chips to China might not have been very effective at all. The aftermath of all this has been a bloodbath, to put it lightly. Venture capitalist Marc Andreessen, who has been advising the Trump White House and Trump himself, called deep-seek AI Sputnik moment, referencing Russia's early win in the space race.
Decoder with Nilay Patel
DeepSeek, Stargate, and the new AI arms race
And that does appear to be how the AI industry and global financial markets are treating it. In DeepSeek and Stargate, we have the perfect encapsulation of two competing visions for the future of AI. Stargate is closed and expensive and requires placing an ever-increasing amount of money and faith into the hands of open AI and its partners.
Decoder with Nilay Patel
DeepSeek, Stargate, and the new AI arms race
The other is scrappy and open source, but with major questions around censorship of information, data privacy practices, and whether it's truly as low cost as we're being told. The only thing that's clear is that we've entered a new phase of the AI arms race, and DeepSeek and Stargate represent more than just two different paths towards superintelligence.
Decoder with Nilay Patel
DeepSeek, Stargate, and the new AI arms race
They also represent a new escalating front in the US-China relationship and the geopolitics of AI. This is all becoming especially fraught as Trump continues to wreak havoc on foreign relations with new threats of tariffs on foreign semiconductors. There's a whole lot going on here, and this news cycle is moving really fast.
Decoder with Nilay Patel
DeepSeek, Stargate, and the new AI arms race
So to break it all down, I invited Verge senior AI reporter Kylie Robison on the show to discuss all the events in the past couple weeks and figure out where the AI industry might be headed next. Okay, DeepSeek, Stargate, and a new AI arms race. Here we go.
Decoder with Nilay Patel
DeepSeek, Stargate, and the new AI arms race
First, let's zoom out a bit for some context on how the AI industry got to where it is today and why DeepSeek has proven to be so disruptive to what everyone thought they knew. Since the release of ChatGPT in 2022, AI executives have been clamoring nonstop about the need for more compute, specifically the need for more NVIDIA GPUs.
Decoder with Nilay Patel
DeepSeek, Stargate, and the new AI arms race
But behind all that talk of compute has always been a much simpler, more powerful force. Money. Money is what buys all those NVIDIA GPUs and what pays the construction bills for new data centers, and importantly, what pays the exorbitantly high salaries of AI researchers developing frontier models.
Decoder with Nilay Patel
DeepSeek, Stargate, and the new AI arms race
And once those models are trained up, it also costs a fortune to run inference on them for businesses and consumers. And only some of those users are paying anything at all to access the models. If you've been following along, you know that the nascent commercial AI industry in the United States hasn't made any money yet, even though it's spending so much.
Decoder with Nilay Patel
DeepSeek, Stargate, and the new AI arms race
And the promise of making tons of money down the line is what's been propping up all the sky-high valuations and glossing over the steep losses of companies like OpenAI. And that all really culminated earlier this month with the big Stargate announcement. OpenAI's new joint data center venture with a handful of partners, most importantly Oracle and SoftBank.
Decoder with Nilay Patel
DeepSeek, Stargate, and the new AI arms race
The stated goal of Stargate is to, quote, secure American leadership in AI and to also, quote, provide strategic capability to protect the national security of America and its allies.
Decoder with Nilay Patel
DeepSeek, Stargate, and the new AI arms race
And while the first Stargate data center is technically underway right now in Texas, details are thin on what shape the whole project will actually take and how it's supposed to actually collect $500 billion in funding over the next four years to accomplish its goals.
Decoder with Nilay Patel
DeepSeek, Stargate, and the new AI arms race
The only thing we really know for sure about Stargate is that it was a huge success in generating a lot of PR, both for the Trump White House and for OpenAI. Here's Kylie.
Decoder with Nilay Patel
DeepSeek, Stargate, and the new AI arms race
Of course, where the money for that compute comes from is a big unanswered question. And it's the sticking point Elon Musk used to criticize the announcement and amp up his feud with Altman. OpenAI certainly doesn't have the money, even though they said they would pledge $100 million immediately to the project.
Decoder with Nilay Patel
DeepSeek, Stargate, and the new AI arms race
But it might not matter if the point of Stargate was to hand Trump an early tech industry win and give OpenAI yet more runway to plan for the future.
Decoder with Nilay Patel
DeepSeek, Stargate, and the new AI arms race
But again, all of this, like so much of AI over the past few years, is built around promises and now a significant amount of Trump-style showboating. Because if you can convince the people with money and now the people with money who work in and around the Trump administration, then you might just get the funding or the easing of regulatory scrutiny you need to keep the lights on for another year.
Decoder with Nilay Patel
DeepSeek, Stargate, and the new AI arms race
Up until this last week, massive data centers were all the rage. Mark Zuckerberg even went on Facebook the same week of the Stargate announcement to remind everyone that Meta is building a $10 billion data center in Louisiana. Amazon's also planning an $11 billion AWS expansion in Georgia. There's no reason to believe yet that these companies are going to hit pause on any of these plans.
Decoder with Nilay Patel
DeepSeek, Stargate, and the new AI arms race
Microsoft has said it's planning to spend $80 billion this year alone on AI-related investment, some of which will go to Stargate, we think, but a lot of which is already planned expansions of its existing Azure infrastructure. And that's why DeepSeq hit so hard. It's arguably the most significant challenge to the AI status quo to date.
Decoder with Nilay Patel
DeepSeek, Stargate, and the new AI arms race
In particular, a challenge to the kind of funding that's driven the past few years of the generative AI boom. Because if the claims around DeepSeq are true, then it's shown that companies might not actually need all that compute. And they certainly don't need $500 billion worth of new data center infrastructure to release a competitive model.
Decoder with Nilay Patel
DeepSeek, Stargate, and the new AI arms race
Already, we've seen high-profile industry figures respond to DeepSeek. Sam Altman on Monday called it a, quote, impressive model and added that it was, quote, legit invigorating to have a new competitor. NVIDIA was nice about it, too, with the company releasing a statement calling DeepSeek an excellent AI advancement.
Decoder with Nilay Patel
DeepSeek, Stargate, and the new AI arms race
David Sachs, the new AI czar in the Trump administration, was quick to twist the moment around into a criticism of the Biden administration, posting on X that, quote, DeepSeek R1 shows the AI race will be very competitive, and President Trump was right to rescind the Biden EO, which hamstrung American AI companies, without asking whether China would do the same. He did warn, though, that the U.S.
Decoder with Nilay Patel
DeepSeek, Stargate, and the new AI arms race
can't be complacent. Sachs might be right, but I disagree on how. DeepSeek is a success because it hyper-optimized the GPUs that we were allowing NVIDIA to sell to China, not because China didn't have regulations. Still the wrong outcome, but that doesn't mean Sachs is right.
Decoder with Nilay Patel
DeepSeek, Stargate, and the new AI arms race
We need to take a quick break. We'll be right back.