The U.S. government has launched an extensive investigation into the Chinese artificial intelligence (AI) startup DeepSeek over allegations that the company may have purchased restricted Nvidia chips through third-party distributors in Singapore, according to a recent Bloomberg report.

The investigation led by the FBI and the White House aims to determine whether DeepSeek has found ways to circumvent the U.S. export ban prohibiting the sale of advanced AI chips to China. This move comes right after DeepSeek launched its AI chatbot, R1, which has garnered significant attention for its advanced reasoning capabilities, raising concerns that the Chinese company may have relied on Western technology unlawfully to build its AI models.

DeepSeek's AI breakthrough raises suspicions

DeepSeek's R1 chatbot, introduced earlier this month, has shocked industry veterans with its human-like efficiency and problem-solving capability. Analysts believe it could rival, if not surpass, some of the most advanced AI tools developed by U.S. tech giants like OpenAI.

However, many experts are skeptical that R1's remarkable performance is solely a result of DeepSeek's internal research and development efforts. OpenAI and other industry competitors speculate that DeepSeek may have leveraged U.S. technology—particularly Nvidia's powerful semiconductors—to enhance its AI capabilities. This suspicion has grown as the U.S. investigates whether DeepSeek acquired banned chips through loopholes in export regulations.

FBI targets Nvidia's H800 chips in investigation

Investigators are primarily focused on Nvidia's H800 chips, a specialized version of Nvidia's high-performance AI semiconductors designed specifically for the Chinese market following the initial U.S. export restrictions in 2022.

According to documents allegedly reviewed by U.S. officials, DeepSeek's AI model V3, released last month and serving as the foundation for R1's chatbot capabilities, was trained on a large cluster of 2,048 H800 chips. Given the computational power required to train DeepSeek's models, authorities believe access to Nvidia chips is critical to the rapid AI advancements of this startup.

In response to growing concerns over China's AI development, U.S. regulators expanded their restrictions in October 2023, prohibiting the sale of even H800 chips to China. Subsequently, Nvidia introduced a further downgraded version, the H20 chip, to comply with the new rules.

However, with reports indicating that DeepSeek may have purchased a significant amount of H800 chips before the ban—or potentially purchased through intermediaries—U.S. officials are now considering tightening restrictions further. Commerce Secretary nominee Howard Lutnick emphasized this point during his Senate confirmation hearing, signaling that the Biden administration may expand the ban to include H20 chips as well.

"The Nvidia chips, which they have purchased tons of, and they have figured out a way to bypass it, drive DeepSeek's model," Lutnick stated. "If they intend to compete with us, that's fine—but stop using our tools to do so."

Singapore's role is under close scrutiny

One of the main focal points for U.S. investigators is Singapore's involvement in suspected chip transfers. Although Singapore is not currently subject to the same chip export restrictions as China, it has become a primary revenue hub for Nvidia.

According to Nvidia's financial reports, Singapore accounts for about 20% of the company's total revenue. However, much of this revenue does not come from the actual chips shipped to Singapore. Instead, orders are placed by entities based in Singapore, and many shipments ultimately go to other countries, including China.

Nvidia has clarified that it monitors "payment" locations, not "shipping," meaning chips purchased by Singapore buyers could be redirected elsewhere. The FBI is currently investigating whether intermediaries have helped redirect these shipments to Chinese parties, effectively circumventing U.S. export controls.

To address these concerns, on Tuesday, U.S. Representatives John Moolenaar and Raja Krishnamoorthi sent a letter to National Security Advisor Mike Waltz, urging the administration to impose stricter licensing requirements on chip exports to Singapore.

Legislators write: "Countries like Singapore must comply with strict licensing requirements if they do not wish to restrict shipments to China."

Currently, large shipments of Nvidia chips to Singapore require a license, but smaller shipments (under 1,700 chips) only need notification. This legal gap has created opportunities for entities to conduct multiple smaller purchases without facing close scrutiny—an issue that U.S. officials are currently seeking to address.

Market impact and industry response

Following news of the investigation, Nvidia's stock was affected, dropping nearly 7%. This announcement also triggered a broader sell-off in the tech sector, with Microsoft, Oracle, and Alphabet experiencing significant declines. In total, major tech companies have lost nearly $1 trillion in market value as investors react to concerns over China's accelerating AI development.

Microsoft and OpenAI have also conducted their own internal investigations into whether DeepSeek may have accessed OpenAI's datasets without permission. DeepSeek's claims that it developed its AI models at a fraction of the cost compared to U.S. competitors have raised speculation that it may have leveraged datasets or computational resources developed by the West.

For Microsoft, DeepSeek's rise poses a long-term potential threat to the company's dominance in the AI market. The tech giant has invested billions of dollars in AI development and is actively working to maintain its leading position. Any signs that DeepSeek benefits from unauthorized access to U.S. technology or data could likely provoke a stronger backlash from policymakers and U.S. tech companies.

Looking ahead: Should AI chip exports be curtailed?

As the U.S. investigation into DeepSeek intensifies, the Biden administration faces increasing pressure to close existing loopholes and tighten restrictions on AI chip exports. If Singapore is found to have facilitated these transactions, the U.S. could impose stricter licensing requirements on all chip shipments exported to the country.

Additionally, if DeepSeek is proven to have purchased Nvidia's H800 chips through illicit means, U.S. regulators may restrict access to the downgraded H20 chips as well, further limiting China's ability to develop advanced AI systems.

Currently, the controversy surrounding DeepSeek highlights the broader geopolitical struggle for AI supremacy. As tensions between the U.S. and China escalate in the tech field, Washington is making it clear that it will take decisive action to prevent U.S.-developed initiatives from boosting China's AI ambitions.

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