After the release of DeepSeek-R1 on 20 January triggered a massive drop in chipmaker Nvidia’s share price and sharp declines in various other tech companies’ valuations, some declared this a “Sputnik moment” in the Sino-American race for supremacy in artificial intelligence. While America’s AI industry arguably needed shaking up, the episode raises some difficult questions.

The US tech industry’s investments in AI have been massive, with Goldman Sachs estimating that “mega tech firms, corporations, and utilities are set to spend around $1 trillion on capital expenditures in the coming years to support AI”. Yet for ...