Nvidia lost at least $580 billion in market value on Monday, reminding everyone the ephemeral nature of category-kings in the knowledge era. When factors of production are anchored around KNOWLEDGE, many things can happen within weeks. Yes, today’s state of the art is limited by today’s knowledge. As that knowledge evolves and advances, new market positionings are created.

This explains why some people prefer boring investments in cement, railways and those domains where the moats cannot be calibrated out overnight through new knowledge anchored on technology. Chinese DeepSeek which wiped close to $1 trillion in markets around the world did not capture most of those since it is not worth $1 trillion. What happened? It “destroyed’ value for those incumbents and saved value for customers. Whenever you see that happening at scale, you have disruptive innovation.

Good People, DeepSeek is not done yet; it only opened the veil. Some US companies are already incorporating its open-source model. That means, the trajectory will continue on reducing the cost for the development and commercialization of AI systems.

I did receive an invitation from the Chinese government for a major semiconductor program; they will pay up to $280k for about two weeks of work, per year, for up to three years (invitation below). Sure, one cannot take this one due to export control restrictions in America; the executive order restricts what many American semiconductor engineers can do in China. Nonetheless, when you look at how far China can go to assemble a winning team, you will respect that nation.

This is a golden era for microelectronics and semiconductors experts! From Taiwan to China, Brazil to Indonesia, governments are unloading with cash to attract experts in this game.

I respect China. I respect America. These are great countries. I am hoping one day that Nigeria will join this fray. Meanwhile, Nvidia will be fine. If everything becomes cheaper, more people will need the solution, and that means via volume it will even make more money. 

The accelerating exclusivity on AI development which DeepSeek has punctured is good for Nvidia, America, China and the whole world over the long-term because in this cloud era, the idea that you must raise at least $1b to build these core models was unfortunate. I commend DeepSeek for the liberation.

Perplexity AI on Sunday unveiled a revised merger proposal with TikTok’s parent company, ByteDance. The new structure, which seeks to combine Perplexity AI with TikTok U.S., has introduced a notable shift in its approach, allowing for the possibility that the U.S. government could own up to 50% of the newly formed company once it goes public.

The updated proposal, which was obtained by CNBC, could have significant implications for both the future of TikTok and the broader U.S. regulatory landscape surrounding Chinese tech companies.

The proposal outlines the creation of a new U.S.-based holding company, named “NewCo,” which would house the merged entities. ByteDance is expected to contribute TikTok U.S., excluding its core recommendation algorithm, in exchange for equity in the new company. Perplexity AI would similarly offer its assets in exchange for a distribution of equity to its investors. The deal would be funded by “new third-party capital providers,” who would contribute the necessary capital to facilitate the transaction. These funds would provide ByteDance’s investors with a “one-time dividend” in exchange for simplified governance and the potential to scale the new entity.

Perplexity AI has experienced a meteoric rise since its inception, driven by the booming generative AI market. Starting in 2024 with a valuation of $500 million, the company now stands at a staggering $9 billion, fueled by increasing investor interest and the surge of AI applications across industries. Yet, the company has also faced controversy, with accusations of plagiarism marring its ascent. Nonetheless, investors have viewed AI-assisted search as a growing threat to traditional search engines like Google, with Perplexity AI positioning itself as a key player in this space.

The proposed merger with TikTok U.S. would bring ByteDance’s U.S. operations into the fold while retaining much of the company’s existing investor base. The deal would allow Perplexity AI to expand its reach, particularly in the realm of video content, which would be integrated into the AI-powered platform.

A source close to the situation revealed that ByteDance’s investors would be able to hold on to their equity in the new company, positioning Perplexity to benefit from TikTok’s massive user base and video capabilities.

“This proposal allows us to bring together two powerful platforms,” the source said. “It’s a way for ByteDance to maintain a foothold in the U.S. market without having to divest from TikTok entirely. Perplexity AI is the ideal partner to make that happen.”

U.S. Government Stake: A New Twist in the TikTok Saga

The most striking aspect of the revised proposal is the potential for the U.S. government to own a significant portion of the new company. Under the new plan, the U.S. could acquire up to 50% of the combined entity once it goes public, with an initial public offering (IPO) expected to value the company at a minimum of $300 billion. This move would give the U.S. government a significant stake in a tech giant at the heart of the national debate over data privacy and security concerns.

A source familiar with the negotiations, quoted by CBNC, stated, “The structure of this deal allows the U.S. government to maintain influence over a critical platform while also providing ByteDance with a way to keep a substantial stake in TikTok U.S. The IPO will be a pivotal moment, but the government’s involvement ensures that American interests are protected.”

The proposal comes amid ongoing concerns about TikTok’s ties to the Chinese government, with U.S. lawmakers and regulators raising alarms over national security risks. President Donald Trump, who has long been vocal about TikTok’s potential threats, recently restored the platform’s operations in the U.S. under specific conditions. In a video posted to TikTok earlier this month, TikTok CEO Shou Zi Chew thanked President Trump for his efforts to find a solution that would keep the app available in the U.S.

“I want to thank President Trump for his commitment to work with us to find a solution that keeps TikTok available in the United States,” Chew said. “It’s a complex issue, but we are committed to doing what’s necessary to protect the interests of our U.S. users.”

Perplexity AI is not the only entity vying for a piece of TikTok. Other tech giants, including Microsoft and Oracle, have been reported as potential suitors for the platform, with each bringing its own vision for TikTok’s future in the U.S. The involvement of high-profile figures, including Elon Musk, has further complicated the bidding process, leading to fierce competition for control over one of the world’s most popular social media platforms.

Microsoft, which was previously in talks to acquire TikTok in 2020, is believed to still be interested in purchasing the U.S. operations of the app. Oracle, a longstanding partner of the U.S. government, is also said to be exploring ways to secure a stake in the platform.

Meanwhile, Elon Musk’s potential interest in TikTok has sparked speculation that he may seek to integrate the platform with his other ventures, such as X (formerly Twitter).

Despite the stiff competition, Perplexity AI’s proposal stands out due to its unique structure, which allows ByteDance to retain control over TikTok U.S. while still enabling the U.S. government to play a role in the new entity. This merger proposal, rather than a traditional sale, gives ByteDance a way to work within the regulatory constraints while positioning Perplexity AI to benefit from TikTok’s immense user base and video content.

The revised proposal comes at a time of heightened scrutiny over Chinese tech companies operating in the U.S. Since 2020, TikTok has faced a barrage of challenges from U.S. lawmakers, who have raised concerns about data privacy, cybersecurity, and potential Chinese government influence over the app. In response, ByteDance has taken steps to separate TikTok’s U.S. operations, including proposals to create an independent board and increase transparency.

For its part, the U.S. government has continued to weigh its options, with President Trump signaling that a decision on TikTok’s future could come within the next 30 days.

Some analysts believe that Perplexity AI’s proposal could be a game-changer in the ongoing TikTok saga, offering a potential compromise that aligns with both the business interests of ByteDance and the regulatory concerns of the U.S. government. However, the deal is far from final, and it remains to be seen whether the revised proposal will be enough to satisfy all parties involved.

The emergence of Chinese artificial intelligence startup DeepSeek has sent shockwaves through global technology markets, triggering a significant selloff in AI-driven stocks and raising questions about the long-standing dominance of U.S. technology companies.

The startup’s groundbreaking AI model, which runs cost-effectively on less-advanced chips, has cast doubt on the sustainability of high valuations in the sector and the strategies of industry leaders like Nvidia Corp.

DeepSeek unveiled a groundbreaking reasoning model, R1, that operates cost-efficiently on less-advanced chips. The release of R1, developed for less than $6 million using Nvidia’s H800 chips, bypasses U.S. export restrictions that bar China from acquiring more powerful H100 chips, marking a significant shift in the AI industry.

This breakthrough sent shockwaves through global markets, with Nvidia Corp. (NVDA) leading a steep selloff as its shares plummeted more than 17% in trading on Monday. Futures on the Nasdaq 100 fell 3.4%, while S&P 500 contracts dropped 2% in premarket trading.

The ripple effect extended to Europe, where tech stocks led market losses, with ASML Holding NV, a critical supplier of semiconductor manufacturing equipment, tumbling 11%. Combined, the Nasdaq 100 and Europe’s Stoxx 600 technology sub-index faced a potential $1 trillion market capitalization wipeout if losses hold.

DeepSeek’s R1 model demonstrates the ability to achieve high performance with significantly lower capital and hardware requirements, challenging the premise that cutting-edge AI models necessitate advanced, expensive chips like Nvidia’s H100. By leveraging the less-powerful H800 chips—designed to comply with U.S. export restrictions—DeepSeek showcased an alternative pathway to AI innovation.

“This breakthrough redefines what’s possible in AI,” said Vey-Sern Ling, managing director at Union Bancaire Privee. “DeepSeek shows that it is possible to develop powerful AI models that cost less. It can potentially derail the investment case for the entire AI supply chain, which is driven by high spending from a small handful of hyperscalers.”

R1’s development cost of under $6 million starkly contrasts the billions poured into AI research by Silicon Valley companies, casting doubt on the sustainability of their high-spending models.

Investor jitters were evident as trading volumes surged. By 4:45 a.m. New York time, roughly 200,000 Nasdaq 100 futures contracts had changed hands—four times the 30-day average for this time of day. The Cboe Volatility Index (VIX), often referred to as Wall Street’s “fear gauge,” spiked higher, reflecting heightened uncertainty.

“This is deeply problematic for the thesis that significant capital expenditure and operating expenses are the best ways to approach the AI trend,” said Nirgunan Tiruchelvam, head of consumer and internet at Aletheia Capital.

The selloff coincides with a crucial week for tech earnings, including reports from Apple Inc. and Microsoft Corp. Analysts predict slowing profit growth amid inflated valuations, compounding concerns about the sector’s resilience.

The Nasdaq 100, currently trading at 27 times estimated forward earnings compared to a three-year average of 24, appears particularly vulnerable. Nvidia’s valuation, at 33 times estimated forward earnings, underscores the risk of overreliance on a single narrative: that AI innovation is inextricably tied to high-cost infrastructure.

China’s Rise in AI

DeepSeek’s success challenges the prevailing notion that China’s AI sector lags significantly behind its U.S. counterparts. It is especially significant as it bypasses Washington’s restrictions on exporting cutting-edge chips to China.

“While current leaders like Nvidia have a strong foothold, it is a reminder that AI dominance cannot be taken for granted,” said Charu Chanana, chief investment strategist at Saxo Markets. “The emergence of China’s DeepSeek indicates that competition is intensifying, and future competitors will evolve faster and challenge established companies more quickly.”

Chinese AI-related stocks reacted positively. Mainland-listed companies with links to DeepSeek, such as Merit Interactive Co., surged by their daily trading limits. In Hong Kong, the Hang Seng Tech Index climbed 2%, buoyed by optimism about DeepSeek’s potential.

A Game-Changing Model

R1’s standout feature is its transparency. Unlike many existing AI models, which operate as black boxes, R1 demonstrates its reasoning process, providing users with a clearer understanding of its conclusions. This feature propelled DeepSeek’s app to the top of Apple Inc.’s App Store rankings within days of its release, garnering praise from users and investors alike.

Notable investor Marc Andreessen described R1 as “one of the most amazing and impressive breakthroughs,” highlighting its potential to reshape the AI landscape.

For years, Silicon Valley has championed the idea that advanced AI requires substantial investments in cutting-edge hardware and energy-intensive infrastructure. DeepSeek’s R1 upends this narrative, showing that cost-effective solutions can rival, and perhaps, surpass the capabilities of resource-heavy alternatives.

“This development calls into question the massive resources dedicated to AI by Silicon Valley,” Tiruchelvam added. “It forces a reassessment of whether these expenditures are justified.”

Tech analysts note that the success of DeepSeek underscores the growing competitiveness of China’s AI sector and the potential for open-source innovation to bridge technological gaps. It also highlights the vulnerabilities of U.S. tech companies, which have built their business models around the assumption of sustained dominance in AI hardware.

“The AI supply chain is being fundamentally disrupted,” Ling said. “This isn’t just about DeepSeek; it’s about the future of AI development and the assumptions that underpin it.”

NVIDIA in a statement on Monday says DeepSeek is an excellent AI advancement and a perfect example of Test Time Scaling.

“DeepSeek’s work illustrates how new models can be created using that technique, leveraging widely-available models and compute that is fully export control compliant. Inference requires significant numbers of NVIDIA GPUs and high-performance networking. We now have three scaling laws: pre-training and post-training, which continue, and new test-time scaling,” it said.

NVIDIA lost $580 billion in market value on Monday.

The Trump administration is working on a sweeping plan to restructure TikTok’s ownership, placing Oracle and a group of U.S. investors at the center of its global operations, per NPR.

The effort comes as Washington ramps up efforts to address concerns over the popular video-sharing app’s ties to China and the potential national security risks associated with its ownership by Beijing-based ByteDance.

Under the plan, ByteDance would retain a minority stake in TikTok, but Oracle would take control of its algorithm, data collection, and software updates, ensuring compliance with U.S. security standards. American investors would hold a majority stake, effectively diluting Chinese influence in the company.

While the terms remain in flux, officials hope the deal will satisfy lawmakers and ease public concern about TikTok’s continued presence in the U.S.

Oracle, which already provides the backbone of TikTok’s web infrastructure, would play a pivotal role in the app’s operations under the proposed deal. The company’s interest in TikTok isn’t new; in 2020, Oracle and Walmart attempted a similar takeover, with Trump’s blessing. That deal fell apart over pricing and regulatory hurdles, but Oracle has maintained its interest, reportedly eyeing a stake valued at “tens of billions” of dollars.

Other tech companies, including Microsoft, are also involved in discussions. Walmart, however, has distanced itself from the current negotiations, citing TikTok’s estimated valuation of $200 billion, which is well beyond its financial reach.

ByteDance’s minority stake would ensure some continuity for TikTok, but the U.S. government is insisting on strict safeguards to prevent Chinese interference.

A congressional staffer involved in the negotiations stated: “A key part is showing there is no operational relationship with ByteDance, that they do not have control. There needs to be no backdoors where China can potentially gain access.”

The negotiations come against the backdrop of a law passed by Congress and upheld by the Supreme Court, requiring TikTok to execute a “qualified divestiture” from ByteDance by January 19, 2024. Although that deadline has passed, Trump issued an executive order granting a 75-day extension.

The controversy surrounding TikTok stems from longstanding fears that the Chinese government could exploit the app to access U.S. user data or manipulate its algorithm. Project Texas, a proposal developed during the Biden administration, sought to address these concerns by storing TikTok’s data in the U.S. and putting Oracle in charge of its oversight.

While Project Texas gained momentum, it ultimately fell short of guaranteeing TikTok’s independence from ByteDance. Sarah Kreps, a technology and foreign policy expert at the Brookings Institution, noted the challenges.

“The question that has always been difficult to answer is how do you prove a negative? How do you prove the absence of Chinese control of data and the algorithm?” she asked.

The collapse of Project Texas has led the Biden and Trump administrations to push for a more comprehensive solution, including divestiture.

Beijing’s U-turn

In a surprising turn, Chinese regulators have signaled they may not oppose a TikTok sale. While Beijing has historically resisted foreign acquisitions of its tech companies, recent statements suggest a more pragmatic approach. Observers believe China may view the sale as an opportunity to negotiate trade concessions with the U.S., particularly in the area of tariffs.

Despite this apparent flexibility, Beijing is unlikely to relinquish control of TikTok’s core algorithm, which is considered a crown jewel of Chinese technology. Experts anticipate that any deal will involve complex licensing agreements to maintain some level of Chinese intellectual property rights.

Trump’s Vision of A 50% U.S. Stake

Trump’s repeated assertions that the U.S. should have a 50% ownership stake in TikTok have generated confusion. Some interpret this as a call for partial nationalization, while others believe he is advocating for a majority stake by American private investors.

“Nobody seems to know what he means with the 50% equity comments,” said a source familiar with the negotiations, quoted by NPR.

TikTok’s precarious situation has also affected its relationship with major tech platforms. The app was temporarily removed from Apple’s App Store and Google Play, going offline for 14 hours. Neither company has reinstated TikTok, depriving it of critical software updates and new downloads on U.S. devices.

Oracle has restored TikTok’s web services, citing political assurances from the Trump administration. However, Apple and Google remain cautious, wary of the legal risks associated with supporting an app still partially controlled by ByteDance.

Kreps added: “Oracle just has more confidence in Trump’s political assurances. For Apple and Google, yes, they were invited to the inauguration last week, but where will things stand next week?”

TikTok’s fate hinges on Congress, where lawmakers remain skeptical of any deal that allows ByteDance to retain a stake in the company. Negotiators must strike a balance between appeasing lawmakers and satisfying ByteDance and its investors.

A key challenge will be ensuring compliance with national security requirements. As one congressional staffer pointed out: “Binding legal agreements ensuring ByteDance cannot covertly manipulate the app will prove critical in winning lawmakers’ approval.”