President Donald Trump unveiled a $500 billion private-sector AI investment package on his second day in office last week, just as Chinese startup DeepSeek demonstrated it can match U.S. technology at a fraction of the cost.

The “Stargate” project, backed by OpenAI’s Sam Altman, SoftBank’s Masayoshi Son, and Oracle’s ORCL Larry Ellison, aims to build massive data centers in Texas over four years. “This is money that normally would have gone to China,” Trump said during the announcement.

DeepSeek’s breakthrough threatens to upend the AI landscape. The nascent Chinese company’s latest models match leading U.S. chatbots while using fewer resources, challenging the assumption that AI advances require ever-increasing computing power and investment.

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The timing heightens tensions in the U.S.-China tech rivalry. Trump’s administration includes China hawks like AI czar David Sacks and Under Secretary of State nominee Jacob Helberg, who each view the AI race as crucial to national security.

Silicon Valley executives hope Trump will loosen domestic regulations while maintaining pressure on China. The president already scrapped Biden-era requirements for AI companies to share information with the government, promising Stargate partners to make development “as easy as it can be.”

DeepSeek’s rise suggests U.S. export controls on advanced semiconductors haven’t prevented Chinese innovation, according to a report by The Economist. The company’s mobile app topped U.S. iPhone downloads in January, with investor Marc Andreessen calling it “AI’s Sputnik moment.”

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“More investment does not necessarily lead to more innovation. Otherwise, large companies would take over all innovation,” DeepSeek founder Liang Wenfeng told Chinese media, noting U.S. chip restrictions remain his main challenge.

The contrast between Trump’s massive investment push and DeepSeek’s efficient approach highlights diverging strategies in the AI race. While U.S. firms bet on overwhelming resources, Chinese companies focus on maximizing limited computing power.

The battle extends beyond raw investment numbers. The Biden administration’s “Framework for Artificial Intelligence Diffusion,” now under Trump’s review, aims to tighten controls on GPU exports and AI data sharing. Critics, including semiconductor giant Nvidia NVDA, argue such restrictions could backfire, pushing allies toward Chinese technology.

Meanwhile, DeepSeek’s models remain constrained by Chinese censorship, automatically deflecting queries about sensitive topics like the Tiananmen Square protests or President Xi Jinping. The company also faces infrastructure challenges, experiencing outages as user numbers surge.

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