MW Will DeepSeek deep-six Trump's Stargate AI dreams?

By Paul Brandus

Trump's $500 billion AI project is smoke and mirrors - and bad economics. China's AI thunderbolt doesn't help.

What might be the return on this massive investment in Stargate? Investors in Oracle, SoftBank and Microsoft should demand answers.

Donald Trump has been called many things - for better or worse - but here's a new label for the 47th U.S. president: tech bro.

On his first full day back in the White House last week, Trump appeared in the Roosevelt Room, across from the Oval Office, with the CEOs of three tech companies - Sam Altman of OpenAI, Larry Ellison of Oracle $(ORCL)$ and Masayoshi Son of Japan's SoftBank (JP:9984) - to announce a $100 billion joint venture to fund and expand America's artificial-intelligence capability. The $100 billion investment, the executives said, would eventually grow to $500 billion.

Other big tech companies are also taking a role. Microsoft $(MSFT)$, OpenAI's largest investor and compute provider; chip titan Nvidia $(NVDA)$; and Arm Holdings $(ARM)$ have been named "technology partners" in the initiative, meaning they'll be involved in building its infrastructure.

Trump called the joint venture - known as Stargate - "a new American company that will invest $500 billion at least in AI infrastructure in the United States," promising that it will create more than 100,000 jobs. He made clear that the initiative is aimed at thwarting China and its AI efforts.

Like the automobile and the radio a century ago, and the internet a quarter-century ago, new technologies endure - and AI obviously will as well. Yet booms have a way of ending suddenly and painfully. The all-too-human capacity for greed, overinvestment and bidding up the prices of things well beyond their intrinsic value - that part of the story never changes.

Is this the situation now? From an investment standpoint, almost certainly. Tech stocks, particularly AI-related shares, were broadsided on Monday after the thunderbolt announcement from China that a startup there called DeepSeek has launched a free open-source large-language model after just two months of development and a modest $6 million investment.

If this figure is accurate, it immediately calls into question the piles of money that U.S. tech companies have been pouring into AI models, data centers and more. Shares of Nvidia, the poster child for AI, plunged in Monday trading.

Stargate has a $500 billion, four-year ramp-up time, Trump says. That seems like an eternity in a world where things seem to move at ever-accelerating speeds.

What might all this mean for Stargate? At first glance, DeepSeek, with its purported low cost and short development time, has thrown down the gauntlet for the U.S. AI community. Who says America is in the lead? And if it is now, who's to say it will stay there? Stargate has a $500 billion, four-year ramp-up time, Trump says. That seems like an eternity in a world where things seem to move at ever-accelerating speeds.

Americans shouldn't take anything, including our assumption that the U.S. is bound to beat the Chinese, for granted. This may be tough for Trump. The president likes winners, likes to bask in their glow. Did you notice how tech titans Jeff Bezos of Amazon.com $(AMZN)$, Tim Cook of Apple $(AAPL)$ and Mark Zuckerberg of Meta Platforms $(META)$ all had better seats at the inauguration than even prospective members of the new president's cabinet?

As for that $500 billion - or even the initial $100 billion - where's this money going to come from? Elon Musk, perhaps jealous about being left out of the Stargate deal (isn't Trump his new best buddy?) has dissed the initiative, writing on his social-media platform X that "they don't actually have the money." The SpaceX and Tesla $(TSLA)$ chief executive added that "SoftBank has well under $10 [billion] secured. I have that on good authority." To which Microsoft CEO Satya Nadella replied in a statement: "I'm good for my $80 billion."

Musk is being petty. Perhaps he - fresh from ousting Vivek Ramaswamy as co-head of the new entity being called the "Department of Government Efficiency" - doesn't like that the name Stargate sounds a lot like Starlink, Musk's satellite internet service that delivers broadband around the world. Whatever the reason, the world's richest man has wasted no time tearing the new initiative down.

Everyone knows about Musk's ongoing spat, for example, with OpenAI. Musk is involved in a lawsuit against the company and Altman. Musk has said he "doesn't trust" Altman and claims in the lawsuit that ChatGPT ditched its original nonprofit mission by reserving some of its most advanced AI technology for private customers.

Meanwhile, what might be the return on the massive investment in Stargate? Investors in Oracle, SoftBank and Microsoft should demand answers. OpenAI is privately held, but the same questions apply.

SoftBank's Son, you may recall, stood by Trump's side eight years ago and pledged to pour $50 billion into the U.S. and create 50,000 American jobs. Too bad that a huge chunk of that capital expenditure was plowed into WeWork, the co-working provider that eventually filed for bankruptcy. Hopefully, "Maso," as Trump affectionately calls him, will now be smarter about deploying capital.

Just last month, Son appeared with Trump at Mar-a-Lago to announce plans to pump $100 billion into U.S. projects over the next four years. Presumably, that figure will now be part of SoftBank's investment in Stargate.

You have to remember that announcements are one thing, and actual accomplishments are another. Recall that Trump's entire first term featured assorted announcements on infrastructure projects that, once the headlines faded, never lived up to the initial hype.

More: Does DeepSeek spell doomsday for Nvidia and other AI stocks? Here's what to know.

Also read: DeepSeek story is bad news for Nvidia and the microchip makers. It may be worse for these stocks.

-Paul Brandus

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January 27, 2025 15:07 ET (20:07 GMT)

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