Chapter 1: What is the main topic discussed in this episode?
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Today's number, 15. That's the percentage of Americans who say they'd be willing to take a job where their direct supervisor is an AI program. We're not sure if that tells us how good American AI has gotten or how bad American bosses are. Money market's bad. If money is evil, then that building is hell.
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Welcome to Profiteer Markets. I'm Ed Elson. It is May 7th. Let's check in on yesterday's market vitals. The major indices extended their rally on reports that the US and Iran were reviewing a deal to end the war and gradually reopen the Strait of Hormuz. That news also sent Brent crude tumbling. Treasury yields also dropped.
Meanwhile, AMD stock soared nearly 20% after the chipmaker beat expectations and raised its guidance. Okay, what else is happening? Chinese AI startup DeepSeek is targeting a $50 billion valuation in its first ever fundraising round. Leading the financing is China's biggest state-backed semiconductor investment vehicle known as the Big Fund. The country's goal?
build a full-stack AI ecosystem that can rival the United States. DeepSeek first grabbed Wall Street's attention last year with R1, a powerful model that was built at a fraction of the cost of leading Silicon Valley LLMs. And last month, it released V4, a model that is now competitive with top US players on a number of benchmarks. So...
Here to discuss DeepSeek and the state of the US versus China AI race, we are speaking with our friend Alice Han, director at Greenmantle and co-host of the China Decode podcast. Alice, thank you for joining us again. I kind of want to start with the valuation here, $50 billion, because... At first glance, it seems quite low when you compare it to Anthropic, which is trading at a trillion.
ChatGPT, OpenAI, sorry, also trading at a trillion on the secondary markets. These companies are ready to go public. And then I also know that this is an extremely powerful model. It's extremely popular. It's the leading model in China. So I guess that number, $50 billion, strikes me as small. I guess, would you agree? And then also, what else strikes you about this news?
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Chapter 2: What is the current state of the AI race between China and the U.S.?
China is prioritizing inference and inference is still an open game in terms of the chip making capabilities. Yes, NVIDIA is really the king when it comes to the training side of the chip infrastructure, but it's still unclear whether or not it can be the winner when it comes to inference chips.
And here I think the Chinese companies like Huawei and SMIC could really give NVIDIA a run for its money in the long term. But right now, Nvidia is the clear leader. A lot of US companies like Broadcom, AMD are also clear winners.
The last thing that I will end on is that currently there isn't enough chips being produced domestically by Chinese chip makers to meet the demand on compute and inference. And that is going to be in the short term the biggest bottleneck. China ordered, these Chinese companies rather, ordered 2 million H200s earlier this year. because there was so much demand for its AI models.
None of that has been approved, obviously, by Beijing. Right now, Huawei is saying that it can do 750,000 units of its Ascend chips. If you just look at the numbers alone, and if you even look at sort of the longer-term statistics on how many chips China can produce and the compute output, China is, by some estimates, only going to be able to produce 2%.
of what NVIDIA and TSMC can produce in 2027 by looking just at compute outputs. That is, I think, huge. But right now, the political priority trumps what is efficient. And the political priority from Beijing is to kickstart a domestic ecosystem that will be able to rival NVIDIA long term.
So just going back to some of those chips that you mentioned there. So you got the Nvidia H20, which was the chip that was essentially designed to be a dumber, slower chip than the highest end that is created by Nvidia. That was designed for China. And... you're telling us Huawei's now got a chip that is three times more powerful on the inference perspective, almost three times more powerful.
So they're not interested in those H20 chips so much anymore, it seems, but still significantly behind the H200 and the Ruben. And those are NVIDIA's really fantastic chips. And they're still behind on that front. I guess the question then becomes like, how far behind are they? And also how... How quickly have they improved recently?
Because Huawei, I mean, it was a name in the AI world, but not that big of a name. And suddenly it seems to be gaining a lot of momentum and a lot of steam. As an observer, I'm reading about it a lot more. I mean, are they getting close to a point where they could actually rival NVIDIA's most advanced chips, which we do not allow to go to China?
They're not yet close, but there are smart workarounds. So firstly, on the training front, obviously there's a lot of news about Chinese air companies distilling models coming out of entropic and open AI that helps them It's almost as if it's a student cheating on an exam and it's just copying a smarter student, right?
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Chapter 3: How does DeepSeek's valuation compare to U.S. AI companies?
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We'll dive into their stories and get valuable insights from top executives, actors, entrepreneurs, and other individuals who have inspired me so much in my own journey. Follow Pretty Tough wherever you get your podcasts. So we are 250 years into this American experiment, and I'd say it's going okay. I'd give us like a C+. There is no perfect past, but there is also no exclusively negative past.
Because humans are going to human. That's what we do. I think the story of America is the struggle of people who have not been included in the promise of America to expand those principles to include more people. What's going to determine the next 250 years of America? And how do we write a new social contract that can give us the democracy we deserve?
Okay, so I'm just going to be a jerk here because I'm a historian. So we have to have a prologue explaining, you know, we the people. Okay. You know, I do still remember it from Schoolhouse Rock. We the people, in order to form a more perfect union, establish justice, what is it? Ensure domestic tranquility? So you're talking about a foundational document.
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We're back with Prof G Markets. When you think about all of the different, I guess, pieces of leverage, or I guess all of the different races would be the right way to describe it. I mean, you've got compute capability. America's winning on that front, it seems. You've got energy. You've got supply chain. You've got...
I think access to the Strait of Hormuz seems to be increasingly an important piece of this. And when you think about all of the different fronts on which the AI war is being waged, on which of them is China winning against America and on which of them is America winning?
So I think about it as a five-layer cake. And in this regard, I was happy that Jensen Huang also had a similar framework, from upstream to downstream. So we start from the upstream, which is going to be basically the rare earths that are used, for instance, that power semiconductors and data centers. This is where China has huge dominance.
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Chapter 4: What are the implications of China's chip capabilities for AI development?
Mutually assured destruction. And so to me, it seems as though this question of the AI race between America and China, increasingly, it's not actually about the technology. It's about diplomacy. And it's about the relationship between the two. And it's about getting us to a place where China doesn't feel that there is any reason to drop the AI equivalent of a nuclear bomb on America.
And it seems to be that that's the trajectory where this is headed. This is a political discussion, not a technological one. I'd just be interested to get your thoughts on that and how this topic is kind of evolving.
I love that question. As I was listening to that podcast, it was clear that neither of them were historians or politics majors as they approached the question. Because as you know, Ed, China built the nuclear with no American help. It was largely Soviet aid. And then they had engineers, physicists who came and built it by 64.
They surprised the world by launching a successful nuclear test in China. That shows you historically that China can, in this AI age, create its own AI capabilities without American, largely, support or input. I think what they confuse is this question, can, in the meantime, Wall Street monetize China's AI development.
Clearly, Jensen has an incentive to make that case, which benefits parts of America. But regardless of that argument, China will find a way to create a rival AI system If that AI system is antagonistic or not, that question and its answer resides on your point, Ed, which I completely agree. Is there going to be continued strategic dialogue and diplomacy?
Kissinger understood this and he was harping on about it even towards the end of his life. And I think it would be very, very sad and ultimately tragic for humanity if we don't have Washington and Beijing continue discussion about their capabilities and intentions as it pertains to AI.
And more importantly, if there isn't track to diplomacy where these Chinese tech companies are also involved, because you also need experts in the room to help both sides assess the capabilities. My concern right now is those two sides, both on the expert side, as well as on the diplomatic side, are very far apart. And that
as Kissinger rightly predicted in his last book on AI, is going to create massively tragic outcomes that we have yet to see, far greater than we have yet to witness in our lifetime. But if we do ultimately come to a point where there is mutually assured destruction in AI, then we may be able to achieve equilibrium.
But that rests on both sides having extremely strong and telegraphed AI capabilities.
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