Emerge's 2025 Story of the Year: How the AI Race Fractured the Global Tech Order

In brief DeepSeek’s ultra-low-cost AI model shattered the assumption that U.S. chip dominance would indefinitely suppress China’s AI ambitions, triggering a global tech realignment. By late 2025, the U.S. and China had severely decoupled their AI ecosystems-splitting hardware, software, standards, and supply chains-while embedding civilian AI advances into military doctrine. The rivalry extended beyond bilateral conflict, forcing allies and emerging economies to choose between American-led proprietary control and China’s open-source influence, all while rare earths, data centers, and defense contracts became frontline assets in a new cold war over intelligence itself. The great unraveling began with a single number: $256,000. DeepSeek, a year-old Chinese startup, claimed it spent that relatively small sum training an AI model that matched the capabilities of OpenAI-which spent over a hundred million dollars to get to the same place. When the app hit Apple's store in January, Nvidia lost $600 billion in a single trading day , which was the largest one-day wipeout in market history. The technical feat aside, DeepSeek’s efficiency breakthrough quickly ignited a global contest far beyond benchmarks or code. Nvidia's China market share had collapsed from 95% to zero. Beijing banned all foreign AI chips from government data centers. The Pentagon signed $10 billion in AI defense contracts . And the world's two largest economies had split the technology stack into warring camps, from silicon to software to standards. The AI war of 2025 was redrawing the map of global power. DeepSeek's breakthrough exposed a strategic miscalculation that had defined American AI policy for years: the belief that controlling advanced chips would permanently cripple China's ambitions. The company trained its R1 model using older H800 GPUs-chips that fell below export control thresholds-proving that algorithmic efficiency could compensate for hardware disadvantages. "DeepSeek R1 is one of the most amazing and impressive breakthroughs I've ever seen-and as open source, a profound gift to the world," venture capitalist Marc Andreessen posted on X after testing it. Deepseek R1 is one of the most amazing and impressive breakthroughs I’ve ever seen - and as open source, a profound gift to the world. 🤖🫡 - Marc Andreessen 🇺🇸 (@pmarca) January 24, 2025 The AI market entered panic mode . Stocks tanked, politicians started polishing their patriotic speeches, analysis exposed the intricacies of what could end up in a bubble, and enthusiasts mocked American models that cost orders of magnitude more than the Chinese counterparts, which were free, cheap and required a fraction of the money and resources to train. Washington's response was swift and punishing. The Trump administration expanded export controls throughout the year, banning even downgraded chips designed specifically for the Chinese market. By April, Trump restricted Nvidia from shipping its H20 chips. “While the Nvidia news is concerning, it’s not a shock as we are in the middle of a trade war between the US and China and expect more punches thrown by both sides,” Dan Ives, global head of technology research at Wedbush Secruities, told CNN. The tit-for-tat escalated into full decoupling. A...

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