The AI Chip Cold War - Part I: The New Cold War

Author

Anna Eisenberg
May 17, 2025

Anna's Deep Dives

Just facts, you think for yourself

AI chips are becoming like a new global currency, but made of silicon, not gold. These chips were once for special uses. Now, they are key to a nation's power, affecting its economy and military. This shift is starting a new kind of global competition. These small computer parts are now a big deal in the fight for global influence, like a new Cold War for AI chips.

A. Why AI Chips Are Key to National Power

The AI chip market is growing fast. In 2024, it was worth $39.27 billion. By 2033, it’s expected to reach $501.97 billion, growing 35.50% each year. Companies like Nvidia and Intel are leading sales. Their chips help many industries, so controlling their supply is important.

Countries now see how vital these chips are. Vietnam wants 100 local chip design firms by 2030 and got $235 billion in foreign investment in 2024 for this. Saudi Arabia is putting over $14.9 billion into tech, using AI to grow its economy. The UAE is also using AI to improve its infrastructure and tech skills.

AI chips aren't just for business; they're crucial for the military. The U.S. military uses AI for logistics and equipment maintenance. Project Maven uses AI to quickly check drone footage. U.S. defense spending is about $717 billion, including money for AI. Taiwan plans to spend $10 billion on its navy over ten years, and its military budget grew 13.9% in 2023 partly due to AI.

The race for AI tech changes national security and global power. Because of this, the U.S. government limits AI exports to 120 countries, including allies like Israel and India. The goal is to stop U.S. tech from helping potential enemies' militaries. But these controls have costs. The U.S. lost $5.5 billion in revenue from Nvidia sales because of these rules.

AI needs a lot of support. AI data centers will need about $250 billion more investment by 2030. They also use a lot of power, expected to grow 19% to 22% a year, reaching about 219 gigawatts. Tech companies have already spent over $100 billion on data centers. This infrastructure is key for AI's future.

China is also working hard on its own chips. It recently put about $47.5 billion into its semiconductor industry. This is part of a $150 billion plan for AI development. Over the last ten years, China has invested about $912 billion in tech, with 23% of that going to AI. China aims to make 70% of its own semiconductors by 2025, up from 30% in 2022.

The U.S. is also taking action. The Stargate initiative has $500 billion to improve U.S. AI infrastructure, with OpenAI and Nvidia adding $100 billion. The U.S. Chips and Science Act gives $280 billion to help the U.S. make more of its own semiconductors. The U.S. has also spent $4.6 billion to stay ahead in basic AI research.

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B. The "Silicon Curtain" and the New AI Cold War

A new divide is appearing in global tech, sometimes called the "Silicon Curtain." It mainly separates the U.S. and China, creating a new tech cold war. This has big effects.

Look at market control. In 2024, U.S. tech companies had about 80% of the $25 trillion global tech market. Chinese companies had only 4.5%. This is a big change from 2019, when Chinese firms had 20%. Trade tensions and the U.S. putting 9,400 sanctions on Chinese groups by 2021 caused this.

Semiconductors are central to this tech fight. They power everything from phones to military systems. The global semiconductor market was worth $580 billion in 2022 and is expected to grow.

In April 2025, the U.S. put new export controls on AI chip tech. This affects big U.S. chip companies. Nvidia might lose $15 billion to $16 billion in revenue, and AMD might lose $1.5 billion to $1.8 billion. To help its own industry, the U.S. passed the $280 billion Chips and Science Act for more self-sufficiency in semiconductors.

China has its own goals. It wants to make 70% of its own semiconductors by 2025, up from 30% in 2022. When a Chinese firm launched the DeepSeek R1 AI model in January 2025, it showed China's tech goals. So, Chinese companies like Huawei might grow their chip businesses as U.S. rules tighten.

This U.S.-China competition is like a cold war, but for AI and chips. Experts worry this tech rivalry could divide the world more, affecting alliances and security plans. So, countries like Denmark and India are trying to make their own AI. This shows we need global rules and cooperation. Without them, this AI Cold War could get worse, and we don't know what that would mean for the world.

C. DeepSeek: A Chinese AI Company Shakes Things Up

A Chinese AI startup, DeepSeek, quickly became a new player in the AI world. Liang Wenfeng started the company in 2023. People noticed when DeepSeek released its R1 AI model in January 2025. It cost about $5.6 million to train. This was much less than Western companies; OpenAI, for instance, spent about $100 million on similar AI training. DeepSeek's lower cost could change how AI is developed.

The R1 launch had big market effects. The U.S. stock market lost $1 trillion in value soon after, partly because of DeepSeek. Nvidia, a top AI hardware company, saw its stock drop 17%, losing about $600 billion in market value. This showed the market was worried.

DeepSeek also did things differently with its tech. It used older Nvidia A100 chips for its models. This went against the idea that only the newest, most expensive hardware could produce top AI. The R1 model has 671 billion parameters and was trained on 14.8 trillion tokens, showing it's advanced even with older chips.

DeepSeek R1 uses a Mixture of Experts (MoE) system. This system only uses the needed parts of its network for a task, which cuts computing costs. The model performs like other AI products but costs less to run. This makes DeepSeek attractive to businesses, like banks, that watch costs.

DeepSeek isn't stopping. It's aiming at different business areas, like customer service and data analysis. In March 2025, DeepSeek launched its DeepSeek-V3 model with better reasoning and coding skills, making it more competitive.

But DeepSeek's quick growth also brings concerns about cybersecurity and data privacy. Some worry that advanced AI like this could be used to find weaknesses in important digital systems, especially with current global tensions.

Regulators are starting to act. The European Union's EU AI Act will take effect in August 2025. High-risk AI models like DeepSeek's will need to meet new rules. The U.S. government is also reportedly talking about tighter restrictions on AI chip sales to China due to security fears about tech like DeepSeek's.

DeepSeek's success shows a big change in the U.S.-China AI competition. It highlights China's $912 billion tech investment over the last ten years. China wants to be a global AI leader by 2030. Companies like DeepSeek could change how AI is made and used globally, focusing more on cost and access. So, DeepSeek affects more than just tech; it impacts global economies and politics. As AI competition grows, companies like DeepSeek will shape this important field's future.

We don’t take shortcuts, chase headlines, or push narratives. We just bring you the news, straight and fair. If you value that, click here to become a paid subscriber—your support makes all the difference.

Table of Contents

(Click on any section to start reading it)

  • Why AI Chips Are Key to National Power

  • The "Silicon Curtain" and the New AI Cold War

  • DeepSeek: A Chinese AI Company Shakes Things Up

  • What AI Chips Are: A Quick Look at GPUs, ASICs, and More

  • How Chips Are Made: The Complicated Global Supply Chain

  • U.S. vs. China: Why They Don't Trust Each Other on Tech

  • The AI Race: Why Being Top in Chips is a Must for World Leaders

  • U.S. Export Controls on China's AI: How They've Changed

  • The "AI Diffusion Rule": What It Was, Why It Was Criticized, and Its Repeal

  • Biden's AI Rule: What It Tried to Do

  • Trump's New Plan: Simpler Rules or a Different Strategy?

  • The "Chip Security Act" Idea: Tracking Chips for Better Control

  • How Location Tracking Could Stop Illegal Chip Shipments

  • Chip Tracking Problems: Privacy, National Rights, and Practical Issues

  • What's the U.S. Strategy? Stopping, Separating, or Just Slowing Down China?

  • Side Effects and Unexpected Results: How U.S. Policies Are Really Affecting Things

  • Nvidia: Stuck Between U.S. Rules and the Chinese Market

  • Nvidia's Modified Chips for China (H20, etc.): New Ideas or Just Weaker?

  • Weaker Chips for China: How This Affects Their AI Tech

  • How Chinese Customers Are Adjusting

  • The Cost: Billions Lost by Nvidia and Others Due to Export Rules

  • How Export Rules Affect Chip Companies Worldwide

  • Shaky Markets: Investor Worries, Stock Swings, and Rethinking AI Value

  • DeepSeek Shakes Things Up

  • Smarter, Not Harder? DeepSeek's Efficient AI

  • DeepSeek vs. Big Spenders: A New Way for AI?

  • DeepSeek's Open Approach: Good for All or Smart Business?

  • More Than DeepSeek: China's Own AI Chip Makers Are Growing

  • Huawei, Alibaba, and Other New Chinese Chip Makers

  • China's AI Chips: Catching Up or Doing Things Differently?

  • China's Big Plan: Self-Sufficiency with Top Companies and Big Money

  • Big Hurdles: Problems for China's Chip Independence Plan

  • China's AI: Copying or Creating New Things?

  • Broken Supply Chains: New Tech Groups and a More Split Digital World

  • What's Next for Innovation: A Boost or a Bust from Competition?

  • Tech "Islands": A Risk to Global Progress?

  • Separate Work, Surprise Discoveries?

  • Power Shifts: How AI Chips Are Changing Global Politics

  • Ethics in the AI Race: Will Security Beat Safe Development?

  • After 2025: What Could Happen with AI, U.S.-China, and World Peace?

  • Lasting Effects: The AI Chip Cold War's Unavoidable Impact and Facing an Unsure Future

Baked with love,

Anna Eisenberg ❤️