Stu Woo
Appearances
The Journal.
How DeepSeek Sank The Stock Market
Yeah, so how did everybody miss this? Okay, that's a good question. So after DeepSea came out last week, a lot of prominent people in Silicon Valley, whether they're AI researchers or venture capitalists, went on X or some other platform and said, this is really innovative, right? Like, they just found a new way of doing this.
The Journal.
How DeepSeek Sank The Stock Market
And one of the guesses was that resource constraints breeds creativity, right? If you think about it, Think about the book or the movie Moneyball. How did the Oakland A's 20 years ago compete with the richest baseball teams despite having a fraction of the budget? Well, they looked at undervalued strategies in baseball and they figured out how to win despite this handicap.
The Journal.
How DeepSeek Sank The Stock Market
So that's one theory that resource constraints breeds creativity.
The Journal.
How DeepSeek Sank The Stock Market
I've been thinking a lot about this question. So I think a lot of people are in general surprised at how far China has come in technology. But in America, you don't actually get to see a lot of this because of effective bans on Chinese technology in America.
The Journal.
How DeepSeek Sank The Stock Market
A lot of Americans have never touched a Chinese cell phone made by Huawei or an electric car made by BYD, which is one of the world's biggest car companies, right? These things basically don't exist in America. So I think what happened was that when Deep Sea came out, Anybody could download it, ask it a question in English and see the answer in English.
The Journal.
How DeepSeek Sank The Stock Market
And they're like, wow, this wasn't supposed to happen. How did this happen?
The Journal.
How DeepSeek Sank The Stock Market
DeepSeek is an AI chatbot. If you've tried ChatGPT, it's just like that. You go to the website, you log in, and you ask it a question, and it'll give you an answer as if a pretty smart human were answering it.
The Journal.
How DeepSeek Sank The Stock Market
I was doing this video interview with somebody in San Francisco who was the founder of an AI company. And we were talking about something else and he didn't know something. So he shared his screen with me and said, let me look it up. And what I thought was weird was that he didn't go to Google or chat GPT. He went to something I never heard of, DeepSeek.
The Journal.
How DeepSeek Sank The Stock Market
And what he said was that he'd been playing with it for the past couple days and he and his coworkers were just talking about it, about how it was amazing and probably just as good as all the American competitors that he's been looking at.
The Journal.
How DeepSeek Sank The Stock Market
So it's the brainchild of a Chinese guy named Liang Wenfeng. He co-founded this hedge fund in China. It's based in Hangzhou, which is also the same tech hub where the Chinese company Alibaba is based. So DeepSeek grew out of that. So Liang's a pretty smart guy. He studied AI at one of China's top engineering programs.
The Journal.
How DeepSeek Sank The Stock Market
And what I thought was really interesting about the company was that it had this really unusual hiring practice. Liang wants creative people, but he doesn't really care that much about experience. And he says his hiring principle is hire people with the least amount of experience because his idea is that if you ask someone with work experience to solve a problem,
The Journal.
How DeepSeek Sank The Stock Market
they're going to say, well, we should solve it like this because this is how I've done it in the past. But if you ask people without experience to solve that same problem, they'll have to sit down, think about the problem, and then they'll figure out the best and freshest and most efficient way to do it.
The Journal.
How DeepSeek Sank The Stock Market
So that's why a lot of people who work at DeepSeek are either fresh graduates or people with just a year or two of work experience.
The Journal.
How DeepSeek Sank The Stock Market
Yeah, so the conventional thinking was that if you wanted to make a world-class AI chatbot or AI system, you needed a lot of the world's best AI chips that are super expensive as well.
The Journal.
How DeepSeek Sank The Stock Market
And the other assumption was that a Chinese company could never do that because the U.S. government had set these restrictions on what kind of chips U.S. companies could sell to China. The thinking was that China would never catch up.
The Journal.
How DeepSeek Sank The Stock Market
Yeah, so DeepSeek released this research paper that explained how it did what it did. And it said that it spent a fraction of the money developing its advanced chatbot. And it did so using less advanced chips. So how can we understand that? So I think a good analogy is that let's look at the first chat GPT that many of us have used. And let's try to understand how that was trained.
The Journal.
How DeepSeek Sank The Stock Market
So imagine that ChatGPT is like a librarian that's read all the books in the library. And when you ask it a question, it'll give you an answer because it's read that book. But the problem is that to read all those books, that requires a lot of time and a lot of electricity for those computer chips to read those books. So DeepSeek didn't have those resources, so it tried a new approach.
The Journal.
How DeepSeek Sank The Stock Market
So imagine you're still in the library, and DeepSeek is a librarian, but it hasn't read all those books. What it does instead is that it's focused on being really good at figuring out what book has the answer after you ask it the question. And it turns out that's just as effective as what ChatGPT originally did. It was just as good, but it used a fraction of the resources.
The Journal.
How DeepSeek Sank The Stock Market
Yeah, that's a good example. There's very few of us who can just read all those books and just maintain all that information in their head. And then when we have to figure out, we just kind of like stress out and call everybody we know and try to answer that question within an hour.
The Journal.
How DeepSeek Sank The Stock Market
So the thinking during the Biden administration was that AI is going to be really important for military purposes. So just imagine you can use it for developing a nuclear weapon or a biological weapon or helping a general make a decision on the battlefield. It could give one side an absolute advantage. So that's why they decided we got to stay a couple years ahead of China on AI.
The Journal.
How DeepSeek Sank The Stock Market
So what they said was that if you're a U.S. company that wants to sell these chips to China, you have to restrict this parameter called interconnect bandwidth. And the analogy that I would use is that if you were designing a race car, this restriction would constrict how much gasoline ran through the fuel line.
The Journal.
How DeepSeek Sank The Stock Market
It complied with that fuel line. The fuel line was constricted, but it increased performance in other parts of the car engine to compensate for that, to make the most out of the fuel it did have.
The Journal.
How DeepSeek Sank The Stock Market
So that gave DeepSeq and other companies a year to buy these pretty powerful chips. And if you look at one of DeepSeq's research papers, it said it used about 2,000 of these powerful China-only chips from NVIDIA to train one of its advanced AI models.
The Journal.
How DeepSeek Sank The Stock Market
Well, I can't remember anything quite like this. I mean, I think the closest thing is when ChatGPT came out three years ago, and that kind of changed the world. Everybody's trying to write poems on it, you know, immediately. But this had some serious financial consequences, right?
The Journal.
How DeepSeek Sank The Stock Market
So DeepSeq published some research papers that explained how it accomplished what it accomplished, but it hasn't revealed all of its secrets. So we don't know exactly what the training data it used. We don't know what that looks like.
The Journal.
How DeepSeek Sank The Stock Market
And there's a lot of people in Silicon Valley who are wondering out loud, without evidence, I might add, but this is informed speculation that maybe DeepSeq actually had even more powerful NVIDIA chips than it's letting on. So there's still a lot to figure out. DeepSeq disclosed some of its secrets, but not all of them.
WSJ What’s News
Auto Stocks Drop as Trump Plans 25% Tariff on Car Imports
If you buy a secondhand phone, you pay a third of the price, maybe half the price for a phone that's pretty similar to a brand new one.
WSJ What’s News
Auto Stocks Drop as Trump Plans 25% Tariff on Car Imports
Apple and Samsung release these new phones every year and people are thinking, oh, you know, these new updates are pretty marginal. I can't really tell the difference between this phone and one that's one or two years old. If you buy a secondhand phone, you pay a third of the price, maybe half the price for a phone that's pretty similar to a brand new one.
WSJ What’s News
Auto Stocks Drop as Trump Plans 25% Tariff on Car Imports
And then I think the other thing is phones are just flat out lasting longer. So you can actually hold on to your phones for three, four, five years and they'll survive.
WSJ What’s News
Auto Stocks Drop as Trump Plans 25% Tariff on Car Imports
Well, it just gives them more options to sell things. Apple would rather have them buy a used Apple phone rather than a used phone from Samsung or everybody else. So it's just keeping them in the ecosystem. If you're a phone carrier, you want to offer a refurbished phone maybe to lure someone from a different carrier at a cheaper price.
WSJ What’s News
Auto Stocks Drop as Trump Plans 25% Tariff on Car Imports
So that just gives you more options to try to win over a customer or retain a customer.