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The U.S. government is currently looking into whether Chinese startup DeepSeek had illegally obtained Nvidia GPUs through middlemen in Singapore. The U.S. has strict curbs on China for advanced chips to make sure the former maintains its technology supremacy.
DeepSeek came to fame when it launched its R1 reasoning model. The model was very close to OpenAI's o1 model, which not many have access to, as it is locked behind the ChatGPT Pro membership that requires a paid subscription. DeepSeek not only launched a similar model but made it open-source and free to use for everyone. People who had never used a reasoning model before quickly started using DeepSeek R1 and the app ended up becoming #1 in the U.S. App Store charts, while plummeting the U.S. stock market and wiping off $2 trillion.
DeepSeek also claimed that it did all of this with just 2000 Nvidia H800 GPUs and just around $6 million, a fraction of what OpenAI needed. This raised many eyebrows about whether DeepSeek really did something different from OpenAI and other U.S. AI companies and whether it's genuinely possible to train AI models with much fewer resources.
A few days ago, President Donald Trump's artificial intelligence czar, David Sacks, said in an interview that there's "substantial evidence" that DeepSeek distilled OpenAI's outputs to train its own model. Distilling involves a 'child model' (DeepSeek) mimicking the reasoning of its 'parent model' (OpenAI), just like humans, by asking it millions of questions. Microsoft and OpenAI started their own investigation on this matter to check if DeepSeek improperly accessed OpenAI's data.
Chip smuggling isn't entirely new in China. Due to export curbs and trade restrictions, the Chinese have often found a way to get around U.S. rules that ban them from getting advanced semiconductors and GPUs needed to train AI models. According to Reuters, organized chip smuggling has been tracked out of countries including Malaysia, Singapore, and the United Arab Emirates.
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