WSJ What’s News - How DeepSeek Caught Up in the AI Race

Episode Date: January 28, 2025

A.M. Edition for Jan. 28. Markets stabilize after yesterday’s selloff, even as the interest continues to swirl over how a made-in-China AI model managed to give Silicon Valley a run for its money. WSJ reporter Stu Woo explains how DeepSeek found a way to operate faster and more cheaply than its competitors. Plus, the Senate approves investor Scott Bessent as Treasury Secretary, as he prepares to oversee President Trump’s tax and tariff plans. And the Trump Administration ramps up its deportation efforts. Luke Vargas hosts.  Sign up for the WSJ’s free What’s News newsletter. Learn more about your ad choices. Visit megaphone.fm/adchoices

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If you go back to the earlier generations of chat GPT, think of it like a librarian. It's read all the books. So when you ask it a question, it goes, oh, I read that in a book. Here's the answer. DeepSeek found a shortcut. It's more like a detective. It's read a little bit.

But when you ask it a question, it'll say, okay, here, let me go find the answer right now. Plus, the Senate approves Scott Bessent as Treasury Secretary and the Trump administration ramps up its deportation efforts. It's Tuesday, January 28th. I'm Luke Vargas for the Wall Street Journal and here is the AM edition of What's News, the top headlines and business stories moving your world today. Is fresh competition from Chinese AI startup DeepSeek a curse or a blessing for the world's

largest tech companies? Yesterday delivered a bloodbath for chipmaker Nvidia, the global leader in AI chips, as its stock fell 17 percent. Other AI stocks also saw big losses, as did nuclear power companies banking on electrifying the AI revolution, and the Nasdaq as a whole skidded more than 3%. But a new day could be delivering a change in perspective. NVIDIA is ticking higher in off-hours trading, U.S. futures are flat, and President Trump

last night, despite calling DeepSeek a wake-up call, identified a potential silver lining in its rise. Today and over the last couple of days, I've been reading about China and some of the companies in China, one in particular, coming up with a faster method of AI and much less expensive method. And that's good because you don't have to spend this much money. I view that as a positive, as an asset. As our ace of Fitch reported on the PM edition of What's News yesterday, DeepSeek managed to create an advance to AI with earlier generation Nvidia chips

at just a fraction of the cost of what other AI firms have spent doing the same work, and despite U.S. export controls designed to contain China's AI advance. Journal reporter Stu Wu is in Singapore. Stu alongside your colleague Rafael Huang, you have pulled back the curtain now even more on how DeepSeek did all of this. What did you manage to learn? Okay, I think there are two big reasons why DeepSeek pulled this off. The first is a genuine innovation.

So they use this new method. So if you go back to the earlier generations of chat GPT, think of it like a librarian. The first is a genuine innovation. all the books. Pretty labor intensive. Yeah, just think about that. You got to sit there, you got to show the chat GPT all these books. It uses a lot of computing power and time and electricity. That costs money. So DeepSeek found a shortcut.

What it does is that instead of a librarian, it's more like a detective. It's read a little bit, but what it does is that when you ask it a question, it'll say, okay, here, let me go find the answer right now. So actually it expends more energy while it's answering the question rather than reading all the books before. go find the answer right now. All right, so that's one of the chip. than the US government wanted to be. So yes, there were export controls, but they weren't that effective at that time. It took about a year for the Biden administration to close that loophole. I guess that raises some big questions for the US, for the Trump administration about what to do with these export controls going forward.

That's right. So when I talked to national security folks in Washington, they're not that concerned right now because they said, hey, look, this is too early to tell. Deep Seek used those pretty powerful Nvidia chips two, three years ago. But you really have to wait another year or two to figure out whether these export controls really work because the export controls didn't really get ramped up until more recently. And as Nvidia makes more powerful chips nowadays, the lag or I guess the advantage that American companies have against Chinese companies will just grow over time. Pete Slauson Stu, what then about the argument from President Trump that this new competition in AI is a

net positive? Seeming to address tech leaders yesterday, he said that, quote, instead of spending billions and billions, you'll spend less and you'll come up with hopefully the same solution, end quote. Is that realistic? Yeah, a lot of people in Silicon Valley are saying the same thing. So yes, DeepSeek found this new way of doing AI that's really innovative. realistic? some of their secrets so they can just follow the same thing and get better at training their own models. And in terms of this DeepSeek advance being a benefit to other tech players, I don't

know to what extent this was maybe just an attempt to save face, but on a day in which Nvidia saw more than half a trillion dollars written off their market cap, a spokesperson for them yesterday sort of tried to spin all of this as a positive. Yeah, it's really ironic because what enabled DeepSeek to succeed so well was that Nvidia them yesterday sort of tried to spin all of this as a positive. chips that did not break any export controls that were fully compliant. So it is a weird situation. They lost all that money, but they think maybe in the long run, this is a good thing. And hey, maybe their export compliant chips become their hot new thing. Maybe.

Yeah, but after this loophole when they made these super powerful export control compliant chips, the US government came down and said, we're going to tighten this loophole. So now the chips that Nvidia does sell to China legally are a lot weaker. Journal reporter Stu Wu in Singapore. Stu thanks so much as always. Thanks Luke. And in market news today, as we mentioned, stock futures are pointing to a calmer trading session to come, though it will be a busy one for earnings with updates due from Boeing,

General Motors and Lockheed Martin before the opening bell with Starbucks and LVMH following this afternoon. Coming up, we'll head to Washington as the Senate confirms President Trump's Treasury Secretary pick and federal agencies scrambled to respond to a pair of orders limiting financial assistance programs and foreign aid. We've got those stories and more after the break. TD Direct Investing offers live support. So whether you're a newbie or a seasoned pro, you can make your investing steps count.

And if you're like me and think a TFSA stands for Total Fund Savings Adventure, maybe reach out to TD Direct Investing. The Senate confirmed Scott Besant as Treasury Secretary yesterday, putting the long-time investor at the center of President Trump's efforts to cut taxes, fight inflation, and impose stiff tariffs on imports. WSJ reporter Chelsea Delaney has more on what we can expect from Besant in overseeing Trump's economic agenda. Chelsea Delaney So in Trump's first term, he cut taxes. A

lot of those tax cuts are expected to expire at the end of this year. And Besant said in his confirmation hearing that he does want to see those tax cuts extended. And if they aren't extended, that would be pretty detrimental to a lot of Americans. And then particularly, he focused on the impact that would have on small businesses. The flip side of that is he wants to get spending under control. So he does want to rein in the deficit and spending cuts are how they're going to get there, not tax rises. The other major thing is tariffs. So there's a lot of discrepancy between Trump's economic advisors on how aggressive they want to be on those. Besant is seen as a more moderating

force. He is supportive of tariffs. But this is one of the things that has made him popular among investors is that he is seen as taking a more middle of the road approach to tariffs. Changing gears, a Trump administration order freezing almost all foreign aid has prompted widespread confusion that's left things like humanitarian programs, counterterrorism efforts, and weapons financing in sudden limbo. The directive on Friday said that the State Department and the U.S. Agency for International Development should not provide foreign assistance until a high-level review of the programs.S. Agency for International Development should not provide foreign assistance until a high-level review of the programs is completed.

The three-month pause has stunned U.S. officials and aid workers, who said that interruption in the roughly $60 billion foreign aid budget for this year could severely damage vital programs globally and could cost lives, and they have flooded the State Department with requests for waivers. State Department spokeswomen didn't respond to questions about which waivers might be granted, the specific programs that are being paused, or the implications abroad. At the same time, the White House has ordered executive departments and agencies to broadly pause federal grants, loans, and other financial assistance programs pending

an administration review. That's according to a memo sent yesterday and reviewed by the journal. It wasn't immediately clear whether the memo only paused financial assistance related to executive orders that President Trump signed during his first week in office or all current federal financial assistance programs. And US government data shows that daily arrests of immigrants in the country illegally appear to be increasing nationwide, with US Immigration Customs Enforcement, or ICE, making nearly a thousand arrests on Saturday and 1,200 on Sunday.

That is after daily arrests during President Trump's first days back in the White House were in line with the average number seen during the final year of the Biden administration when ICE arrested approximately 310 people a day. Trump is looking to make early progress on his campaign pledge to carry out the largest mass deportation in U.S. history, with his team targeting immigrants in the country illegally with criminal backgrounds, including minor offenses. And that's it for What's News for this Tuesday morning.

Today's show was produced by Kate Bulevent, our supervising producer was Daniel Bach, and I'm Luke Vargas for The Wall Street Journal. We will be back tonight with a new show, and until then, thanks for listening.