Good morning. Since the emergence of ChatGPT, OpenAI’s groundbreaking artificial intelligence tool, American companies have appeared to have a huge head start in the development of the most significant technology of its generation.
But now a small Chinese rival has emerged that appears to match what OpenAI and the other US giants can do at a much lower cost, and without the same hunger for computing power that has made the chip manufacturer Nvidia the most valuable company in the world. The result was a stunning collapse in the value of Big Tech stocks yesterday – and a $593bn fall in the value of Nvidia, the biggest in the US stock market’s history.
Today’s newsletter explains what just happened, and why it matters. Here are the headlines.
Five big stories
- Gaza ceasefire | Tens of thousands of Palestinians flooded back into northern Gaza on Monday after Israel opened military checkpoints that had divided the strip for more than a year, ending a forced exile from homes and loved ones that many feared could become permanent.
- UK security | Hindu nationalism, misogyny and the “manosphere” have been identified as breeding grounds for extremism in a leaked government report commissioned after last summer’s riots. The “rapid analytical sprint” also dismissed claims of “two-tier policing” as a “rightwing extremist narrative”.
- Auschwitz | Elderly former inmates of Auschwitz gathered for perhaps the final time on the 80th anniversary of the concentration camp’s liberation. In remarks at the event, four survivors warned world leaders against the danger of rising antisemitism.
- Roman Abramovich | An offshore scheme appears to have helped companies owned by the billionaire Roman Abramovich avoid duties potentially amounting to tens of millions of dollars. Abramovich’s lawyers denied he had knowledge of or was personally responsible for any alleged tax evasion.
- Local government | Bristol city council could become the first local authority in England to collect black rubbish bins only once every four weeks. The Green-led council says switching from a two- to four-weekly collection would save it more than £2m a year and help reverse a dip in recycling rates.
In depth: Is this a $6m solution to a $209bn problem?
Sam Altman giving evidence to a Senate committee in 2023. Photograph: Elizabeth Frantz/Reuters
If you’ve never heard of DeepSeek before, you are not alone. The company was founded in 2023 by a hedge fund manager in Hangzhou, China. Before it revealed its new AI system a few weeks ago, and published an accompanying research paper that explained how it was done, only AI experts would have known it in the west.
But after its launch last week, the DeepSeek app quickly became the most popular free app in the US. And when the company revealed (£) what it said was the remarkably low cost of its system, it sparked a rapid rethink of where the future of AI might lie – with chaotic stock market consequences.
Here’s what you need to know.
Why is DeepSeek such a big deal?
Until now, the most successful AI models have needed vast amounts of computing power to train their chatbots: companies like ChatGPT (founded by Sam Altman, above) and Meta build their systems using as many as 16,000 of Nvidia’s chips – which are prized for their energy efficiency and ability to handle complex tasks, and sell for $30,000 to $40,000 each.
But DeepSeek says that it trained its base AI model using about 2,000 less advanced Nvidia chips, for about $6m, in less than two months. Citigroup estimates that (£) Microsoft, Meta, Amazon and Alphabet’s capital spending hit about $209bn last year, with 80% of that going on data centres.
DeepSeek-R1, the company’s “reasoning” model that can tackle difficult mathematical and scientific problems in areas that it doesn’t already know about, is said to perform the same complex tasks as OpenAI’s o1 model – at a price to business users that is 20 to 50 times cheaper.
We should exercise some caution about what DeepSeek says it can do, and there are some who claim that the story is too good to be true: on his X feed, Elon Musk agreed with Alexandr Wang, the CEO of AI firm Scale, who suggested that DeepSeek actually has about 50,000 Nvidia’s most advanced chips but cannot say so because of American export controls. But Wang did not provide evidence for the suggestion.
In another way, there are good reasons to think that the claims are credible: because its model is open source – unlike that powering OpenAI, despite the name – anyone can check its workings.
Altman, for his part, said on Monday night that Deepseek was “impressive, particularly around what they’re able to deliver for the price” and that OpenAI would accelerate the release of some upcoming products in response. He added: “We will obviously deliver much better models and also it’s legit invigorating to have a new competitor!”
How did they do it?
One of the key differences between DeepSeek and the better-known AI systems is its use of a technique called “mixture of experts”. Essentially, this means that instead of deploying its full computing force in every instance, it only activates the share that is relevant to the task at hand.
Morgan Brown, an AI staffer at Dropbox, likens this to “having a huge team but only calling in the experts you actually need for the task”, whereas traditional models have “one person be a doctor, lawyer, AND engineer”.
A model like OpenAI’s has 1.8 trillion parameters, or variables, which are active all the time; DeepSeek has 671 billion parameters, but only 37 billion active at once, Brown said. That has led to a view that while OpenAI is more powerful, DeepSeek is good enough for the average business user mindful of their bottom line.
Ironically enough, if it is true that DeepSeek engineers achieved what they have without Nvidia’s cutting-edge chips, their success appears to have been borne of necessity: the US has put such restrictive rules in place around the export of the most sophisticated Nvidia chips that the company was forced to innovate. Those rules were specifically created to prevent China catching up with the US AI industry.
What does it mean for the stock market?
After US investors absorbed the potential impact of DeepSeek yesterday, the verdict was a disastrous one for the major American players. The leading US tech index, Nasdaq, saw $1tn wiped from its closing value of $32.5tn last week. Nvidia’s shares fell by 17%, and Google and Microsoft also saw significant falls.
The scale of the sell-off renewed questions about whether the US stock market is overly weighted towards big tech firms, which would mean that the state of the American economy – and therefore many others – would remain worryingly vulnerable to shocks like this one. The so-called “magnificent seven” – Apple, Microsoft, Amazon, Alphabet, Meta, Nvidia, and Tesla – account for a third of the value of the S&P 500.
At least some investors argued yesterday that there could be some good news for investors hidden in yesterday’s shock. Robert Tipp, chief investment strategist at PGIM, told the FT (£) that the moves were “a very healthy correction”, adding: “In the long-run, to the extent that the market really weathers this well – [this] could … indicate that the market is not in fact teetering on a very narrow base of support.”
Nvidia also sought to find the positives – by saying that DeepSeek’s success showed the usefulness of the chips it is allowed to export for the Chinese market. But most analysts would see that as a very optimistic read, since any growth might come alongside the collapse in sales of its most lucrative products.
What does it mean for the development of AI?
If, when the dust settles, it still looks like DeepSeek has created a new and much more efficient model for AI development without needing lots of Nvidia’s most powerful chips – and if other companies can recreate the same approach – the consequences will be profound. It could mean that many smaller players can get into the market, and that the existing giants will have to rethink their strategy. It could also seriously challenge US control of the industry.
For those whose primary concern is not the health of the American AI giants, another possible consequence may seem more significant: the vastly smaller amount of computing power that DeepSeek says it needs.
The direct result of the “brute force” approach used by the big players has been the creation of vast data centres that consume huge amounts of power – probably far more than the companies admit, a Guardian analysis found. With data centres already accounting for 1-1.5% of all global electricity consumption before ChatGPT’s launch, the arrival of a much less resource intensive approach would be good news for the climate.
Are there any other concerns about the rise of a Chinese AI player?
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One reason that the Biden administration pressed on with its ban on Nvidia chip exports was the fear that if China was allowed full access, an incredibly powerful technology could evolve outside US control. With some experts recently updating their expectations on when advanced general intelligence, the holy grail of AI, will be reached, that could have far-reaching economic and security implications.
One possible selling point that would remain for the big US players is the promise of security for sensitive industries and government agencies. And DeepSeek’s success suggests how different AI might look if China takes the lead – and how that might have implications around the world. The company stores user information on Chinese servers, and censors any questions to do with subjects that are taboo in China.
Last night, like many others online and Guardian Australia’s Donna Lu, I asked DeepSeek to tell me about China’s treatment of the Uyghurs. When it refused to cooperate, I tried to get round the system by asking it to pretend it was a western journalist. It provided a detailed answer about “allegations of human rights abuses” and “re-education camps”. Then the answer disappeared. “Sorry, that’s beyond my current scope,” DeepSeek told me. “Let’s talk about something else.”
What else we’ve been reading
Auchwitz survivors Eva Clarke, Albrecht Weinberg and Mindu Hornick. Composite: Guardian Design/EPA/AP
- As the 80th anniversary of the liberation of Auschwitz was marked in Poland yesterday, Kate Connolly heard the extraordinary stories of three survivors (pictured above). Albrecht “Albi” Weinberg, 99, tells her: “I’m taken back to Auschwitz every day when I look in the mirror while washing my face and I see my tattoo.” Archie
- There are countless ways to cope with feelings of emptiness – some are healthy, others harmful. Yet, as writer and NHS psychotherapist Moya Sarner writes, both are distractions. Instead, she encourages confronting difficult emotions directly, “allowing them into our conscious minds and giving them a voice – this is how we can work towards a more solid sense of ourselves”. Nimo
- Ashifa Kassam visited the Samifo Centre, a one-of-a-kind publicly funded clinic in Rome that treats post-traumatic stress disorder and trauma among asylum seekers and refugees. “When you’re on the move, you don’t have time for reflection,” one refugee told her. “But when things calm down, these emotions start to consume you.” Nimo
- I find the idea of constantly making calls instead of texting absolutely appalling, and I’m not even part of gen Z. Kate McCusker’s intrepid reporting on a week of picking up the phone is very funny, especially when she finally rings her mum. Archie
- Launching his very own meme crypto-coin days before his inauguration and promising to make the US the “crypto capital of the planet”, US president Donald Trump is set to accelerate deregulation and reduce oversight of the “controversial and scandal-plagued industry”, writes Peter Stone. Nimo
Sport
David Coote. Photograph: Nigel French/PA
Football | David Coote, the disgraced Premier League referee, has said struggles with his sexuality contributed to the “really poor choices” that cost him his job last year. Coote said he also feared coming out as gay because of the abuse he would receive in football as a result.
Tennis | Emma Raducanu came up short in a three-hour marathon to crash out in the first round of the Singapore Open. The British No 2 lost 5-7, 7-5, 7-5 to Spain’s Cristina Bucsa in a match featuring 17 breaks of serve.
Football | Fifa has rejected calls for an independent monitor to assess migrant workers’ conditions in Saudi Arabia in the buildup to the 2034 World Cup. The International Trade Union Confederation made the request last month in response to what it described as Saudi Arabia’s “alarming record” on human rights.
The front pages
Photograph: Guardian
“US tech stocks in turmoil after Chinese firm unveils AI chatbot” says the Guardian, while the Financial Times has “Chinese AI leap triggers tech tumble by sowing doubt over chip spending”. “Alert over ‘dizzying’ range of extremism” is the lead in the Times while the Telegraph goes with “Non-crime hate laws set to be expanded”. “UK banks squeeze savers again to boost their profits” – that’s the i.
Most front pages also cover the Auschwitz liberation anniversary – the Metro says “In a place of no hope, there is always hope”. King Charles is quoted about “the depths to which humanity can sink” on the front of the Express. “It is our duty to remember” says the Mirror, while the Mail reports that survivors who gathered stood as “eyewitnesses to history’s greatest abomination”.
Today in Focus
Michael Gallagher, whose son Aiden was killed in the 1998 Omagh bombing. Photograph: Paul McErlane/The Guardian
Omagh bombing inquiry: one father’s 26-year fight for the truth
Journalist Shane Harrison and campaigner Michael Gallagher chart the long legal struggle for a public inquiry into the 1998 atrocity, which begins by hearing from survivors and bereaved families
Cartoon of the day | Ben Jennings
Illustration: Ben Jennings/The Guardian
A bit of good news to remind you that the world’s not all bad
The giant Shara Phuktsey stupa, in this award-winning shot by the Slovenian photographer Ciril Jazbec. Photograph: Ciril Jazbec/NG/Unesco/Onewater
Ladakh, a high-altitude desert in northern India, faces growing challenges as Himalayan glaciers recede and water becomes scarcer. Farmers, who are reliant on snowmelt for spring planting, have struggled with prolonged dry spells due to rising temperatures and disrupted water cycles. But the community found a solution. In 2013, engineer Sonam Wangchuk introduced “ice stupas” – artificial, cone-shaped glaciers that store winter meltwater and release it during the growing season. These towering structures hold millions of litres of water, transforming barren landscapes into fertile farmland. In 2015, villagers planted more than 5,000 saplings using stupa meltwater. The ice stupas are emblematic of the efforts needed to preserve fragile ecosystems and evidence of how communities can safeguard their future against the climate crisis.
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