Were DeepSeek's Development Costs Much Higher Than Reported?

Nearly three years ago a team of Chinese AI engineers working for DeepSeek's parent company unveiled an earlier AI supercomputer that the Washington Post says was constructed from 10,000 A100 GPUs purchased from Nvidia. Roughly six months later 'Washington had banned Nvidia from selling any more A100s to China,' the article notes.

Remember that number as you read this. 10,000 A100 GPUs...

DeepSeek's new chatbot caused a panic in Silicon Valley and on Wall Street this week, erasing $1 trillion from the stock market. That impact stemmed in large part from the company's claim that it had trained one of its recent models on a minuscule $5.6 million in computing costs and with only 2,000 or so of Nvidia's less-advanced H800 chips.

Nvidia saw its soaring value crater by $589 billion Monday as DeepSeek rocketed to the top of download charts, prompting President Donald Trump to call for U.S. industry to be 'laser focused' on competing... But a closer look at DeepSeek reveals that its parent company deployed a large and sophisticated chip set in its supercomputer, leading experts to assess the total cost of the project as much higher than the relatively paltry sum that U.S. markets reacted to this week... Lennart Heim, an AI expert at Rand, said DeepSeek's evident access to [the earlier] supercomputer would have made it easier for the company to develop a more efficient model, requiring fewer chips.
That earlier project 'suggests that DeepSeek had a major boost...' according to the article, 'with technology comparable to that of the leading U.S. AI companies.' And while DeepSeek claims it only spent $5.6 million to train one of its advanced models, 'its parent company has said that building the earlier supercomputer had cost 1 billion yuan, or $139 million.') Yet the article also cites the latest insights Friday from chip investment company SemiAnalysis, summarizing their finding that DeepSeek 'has spent more than half a billion dollars on GPUs, with total capital expenditures of almost $1.3 billion.'
The article notes Thursday remarks by OpenAI CEO Sam Altman that DeepSeek's energy-efficiency claims were 'wildly overstated... This is a model at a capability level that we had quite some time ago.' And Palmer Luckey called DeepSeek 'legitimately impressive' on X but called the $5.6 million training cost figure 'bogus' and said the Silicon Valley meltdown was 'hysteria.'

Even with these higher total costs in mind, experts say, U.S. companies are right to be concerned about DeepSeek upending the market. 'We know two things for sure: DeepSeek is pricing their services very competitively, and second, the performance of their models is comparable to leading competitors,' said Kai-Shen Huang, an AI expert at the Research Institute for Democracy, Society and Emerging Technology, a Taipei-based think tank. 'I think DeepSeek's pricing strategy has the potential to disrupt the market globally....'

China's broader AI policy push has helped create an environment conducive for a company like DeepSeek to rise. Beijing announced an ambitious AI blueprint in 2017, with a goal to become a global AI leader by 2030 and promises of funding for universities and private enterprise. Local governments across the nation followed with their own programs to support AI.

Read more of this story at Slashdot.