DeepSeek’s deep impact and Australia’s mineral conundrum

Hello from Tokyo, this is Katey Creel, Nikkei Asia’s tech editor.

One of the most common mistakes in journalism is to expect downtime in the news cycle. While companies, analysts and even a few journalists were looking forward to some well-earned time off over the Lunar New Year holiday this week, DeepSeek had other ideas.

The Chinese company’s sudden release of a chatbot that it says was radically cheaper to develop dropped a bomb on an industry that for the past two years has operated under the assumption that the only way forward in AI was to have more computing firepower.

Its arrival is a reminder that tech hype can be both a boon and bane for the stock market. When OpenAI introduced the world to generative AI with its ChatGPT chatbot, it kicked off a years-long rally in tech shares and turned Nvidia, a chipmaker known mostly among gamers, into a multitrillion dollar industry leader (and its CEO into something of a rock star).

This time around, the innovation is threatening to puncture the bubble — if powerful AI models can be developed without Nvidia’s pricey hardware, the bullish case for AI spending suddenly looks a lot shakier.

“If” being the operative word. DeepSeek puts its achievements down to innovation and clever use of less powerful chips. More sceptical observers say it may be piggybacking on western technologies or relying on more advanced US hardware than it claims.

A co-worker recently back from a visit to China made an interesting point: DeepSeek’s “Sputnik moment” and the ensuing uncertainty over its claims show just how deeply divided American and Chinese research spheres have become due to political tensions and US sanctions.

With no one talking to each other any more, she argued, it’s no wonder the US was taken by surprise.

Sifting sands

Beneath the fertile farmlands of Victoria in south-east Australia lie deposits of mineral sands that miners and politicians are keen to tap for rare-earth elements, ingredients in everything from EV batteries to wind turbines to advanced weapons.

Two mineral sands projects recently passed the environmental assessment stage, and others are in the pipeline. Victoria’s state government sees a potential second gold rush if these projects succeed, while the federal government is keen to develop domestic resources to build a “China-free” supply chain of critical minerals, writes Nikkei Asia’s Shaun Turton.

But things are not so simple: One of the main buyers of the expected output is a Chinese refiner, an arrangement that risks reinforcing China’s already iron grip on the supply chain that creates the chemicals needed for powerful magnets. Shenghe Resources, one of China’s largest rare-earth companies has inked a deal to buy 60 per cent of the output from one of the Victoria projects. The other company says it has not decided where to sell its output, yet Shenghe is a minority shareholder.

According to rare- earths expert Jack Lifton, Shenghe’s main interest is securing more supplies to feed China’s appetite for rare-earths feedstock.

“They’re out there buying millions of tonnes of mineral sands, tens of thousands of tonnes of monazite,” Lifton said. “Their last thought at night is: How else can we get more?”

On the hunt

Masayoshi Son is stepping up his hunt for deals to match his vaunted ambitions for the artificial intelligence sector.

SoftBank is in talks to lead a funding round for AI robotics start-up Skild AI that would more than double its valuation to close to $4bn, write the Financial Times’ Stephen Morris, David Keohane and George Hammond.

The fresh investment, which was confirmed by three people familiar with the matter, would eclipse the $300mn raised in the company’s first round in July and has been given the green light by the SoftBank founder. However, the people cautioned talks were still at an early stage and there was no guarantee they would be successful. SoftBank declined to comment. Skild did not respond to a request for comment.

US-based Skild, founded in 2023, wants to build the world’s first scalable foundation model for robotics. Skild is an increasingly typical target for the largesse of SoftBank and its now AI-focused Vision Funds, which have been progressively folded into the main company, with their investments often guided by Son directly.

Tencent’s overseas gaming gambit

China’s top esports teams are still capable of filling stadiums, as the sold-out Honor of Kings championship event late last year showed. But with gaming revenues plateauing and regulatory uncertainty hanging over the sector, gaming giant Tencent and its compatriots are looking overseas for new growth, writes Nikkei Asia’s Wataru Suzuki.

A major target is south-east Asia, where esports revenues were just one-sixth those of China’s in 2022, according to calculations by Niko Partners. Venturing overseas, however, means taking on new rivals as well as having to adapt to markedly different gaming habits and preferences.

Meanwhile, foreign studios are taking a crack at the Chinese market. Last month, US publisher Valve held a major tournament for its Counter-Strike 2 game in Shanghai, drawing 70,000 spectators.

Distillation or innovation?

One of the biggest questions surrounding DeepSeek, the Chinese AI developer shaking up the tech world, is just how it achieved its claimed breakthrough in low-cost model training. One suggestion is distillation, or using a bigger, more robust model to develop a smaller, more nimble one, Nikkei Asia’s Ryohtaroh Satoh writes.

Whether and how much the company relied on this approach is not clear — DeepSeek says it used “optimised co-design of algorithms, frameworks and hardware” — but distillation could have broader implications for the AI industry. As more companies look to deploy artificial intelligence in their operations, many are looking for more affordable models that are quicker to develop and more tailored to their needs, all things that distillation could deliver.

“There is a big trend of reducing the size of the AI model,” one engineer told Nikkei Asia. “Over time, there will be many ways to achieve this.”

What long-term impact this will have on cutting-edge hardware makers like Nvidia remains to be seen.

Suggested reads

1. Musk says Tesla ‘in a bind’ launching full self-driving function in China (Nikkei Asia)

2. Microsoft CEO calls DeepSeek ‘good news’ for AI adoption (Nikkei Asia)

3. China’s emboldened AI industry releases flurry of model updates (FT)

4. Panasonic to boost Vietnam wiring device output to fend off China (Nikkei Asia)

5. Zhan Ketuan: Chinese crypto and AI mogul becomes US target (FT)

6. Japan chip reboot ‘promising’ despite stiff competition: ASML CEO (Nikkei Asia)

7. Why Nvidia investors are spooked by Chinese AI upstart DeepSeek (FT)

8. US export controls have forced Chinese tech companies to be more innovative (FT)

9. Samsung, LG try to outpace China display rivals with new OLED tech (Nikkei Asia)

10. SK Hynix profits beat Samsung’s for first time on AI boom (FT)

#techAsia is co-ordinated by Nikkei Asia’s Katherine Creel in Tokyo, with assistance from the FT tech desk in London.

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