By Bill Alpert

DeepSeek's bombshell claim of a dirt-cheap, world-class artificial intelligence rig blew a $600 billion hole in Nvidia's market value Monday. America's confidence in its AI lead over China seems to have vaporized like our atomic chauvinism after the 1949 Russian A-bomb test.

The DeepSeek news came two weeks after the outgoing Biden administration tightened controls on computer chip exports. The Trump administration hasn't said if it will implement the new controls.

Students of strategic technology say the protection efforts shouldn't be discarded -- they should be better enforced. And firms like Microsoft and Meta Platforms should continue investing to maintain America's AI edge.

"I don't think this means that export controls failed," says Martin Chorzempa, a tech security researcher at the Washington, D.C.-based think tank, Peterson Institute for International Economics. "It means that controls are even more important and need to be better enforced."

AI pioneers like OpenAI and Alphabet's Google developed their leading-edge AI models on clusters of more than 10,000 Nvidia chips, which cost billions. DeepSeek says it spent $5.6 million for a couple of thousand of the dumbed-down version of Nvidia chips available for export under controls issued by the Biden administration in 2022 and 2023.

The DeepSeek claims on its development costs are impossible to verify. Some suspect that it had access to data centers in China equipped with large numbers of advanced Nvidia chips.

"The initial controls were too leaky, and that allowed Chinese firms to obtain a large quantity of chips that were state of the art, at least a couple of years ago," says Chorzempa.

Controls on critical technology are enforced by the Commerce Department's Bureau of Industry and Security. That enforcement arm is under-resourced, Chorzempa says, which leaves it ill-equipped to track the covert trading networks that help China circumvent U.S. controls on advanced chips and the gear that make them.

The Bureau of Industry and Security tightened controls on military critical chips in December 2024, and then again on Jan. 15, just five days before Trump's inauguration.

It is too soon to tell whether the Trump administration will implement those controls on advanced chips, says Geoffrey Gertz, an expert on controls with the Center for a New American Security think tank in Washington, D.C. He thinks that Trump will.

Gertz notes that Republicans in Congress have long complained that Commerce should better-enforce the export controls.

"The Biden Administration did well in creating these controls," Gertz says. "Now that the Republicans are in power, I hope they will allocate more resources to carry out this work."

Yet controls aren't enough to maintain America's lead in AI -- or in any other scientific field.

While DeepSeek may have built an impressive model on the cheap, the leading-edge of AI still seems to require massive investments like the Startgate project announced last Tuesday by OpenAI, Oracle and SoftBank, or the 1.3 million-processor cluster teased by Meta's Mark Zuckerberg on Friday.

"Export controls by themselves are not a panacea for keeping the U.S. lead in advanced AI," says Gertz.

Write to Bill Alpert at william.alpert@barrons.com

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January 27, 2025 19:06 ET (00:06 GMT)

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