China is making rapid strides in artificial intelligence (AI), closing the technology gap with the United States to as little as three months in some areas, according to 01.AI CEO Lee Kai-fu. Speaking with Reuters, Lee highlighted that Chinese startups like DeepSeek have made significant progress by optimizing chip usage and applying advanced algorithms more efficiently, despite US sanctions aimed at slowing down the country’s AI development.
China’s AI Innovation Surges Despite Sanctions
In recent years, the US has imposed heavy restrictions on semiconductor exports to China, aiming to hinder its access to cutting-edge AI hardware. However, Chinese companies have adapted by enhancing their infrastructure software engineering and maximizing the potential of available hardware. Lee revealed that China, which was previously six to nine months behind the US, has now reduced that gap to just three months in core technologies. In some areas, such as infrastructure software, China has even surpassed the US.
“DeepSeek’s new methods for reinforcement learning and its unique approach to chain-of-thought algorithms show that China isn’t just catching up—it’s becoming increasingly innovative,” said Lee.
Inefficient Resource Usage Slows China’s AI Growth
Despite its technological advancements, China faces inefficiencies in resource utilization. According to a recent MIT Technology Review report, 80% of China’s newly built computing resources remain unused. This underutilization is attributed to inexperienced players, including corporations and local governments, investing in AI infrastructure without a clear strategy. Many data centers, built during the AI investment frenzy, have now become distressed assets due to poor optimization.
Nonetheless, China’s AI sector remains resilient. By open-sourcing key technologies, the country is reducing its dependence on Western hardware and software. This strategy enables Chinese companies to bypass sanctions by collaborating on shared technological frameworks, which could eventually challenge the West’s AI monetization model.
Hedge Funds Eyeing AI Stocks as Competition Heats Up
As the US and China race for AI supremacy, hedge funds are piling into promising AI stocks. One standout company is Palantir Technologies Inc. (NASDAQ: PLTR), which is making waves with its latest strategic partnership.
On March 25, Palantir announced a collaboration with Everfox, a leader in cross-domain technology solutions. This partnership aims to enhance secure data sharing and connectivity in classified network environments. By combining Everfox’s cross-domain expertise with Palantir’s AI capabilities, the companies plan to deliver advanced solutions for joint command and control operations, particularly for defense clients.
The partnership has already been deployed with existing customers and is expanding to more clients with complex operational needs. Palantir’s Mission Manager platform, combined with Everfox’s cross-domain solutions, will streamline intelligence processing, enabling warfighters to make faster, more informed decisions based on real-time data from multiple sensors and networks.
“We’re proud to partner with Everfox to enhance the warfighter mission,” said Palantir’s leadership. “Our combined efforts will provide transformative operational efficiency, ensuring our customers remain at the forefront of technological advancements in defense.”
The Future of the AI Arms Race
China’s rapid advancements and strategic open-sourcing efforts are reshaping the global AI landscape. While US sanctions temporarily slowed China’s progress, they have ultimately driven the country to become more self-reliant and innovative. With companies like DeepSeek pioneering new algorithms and infrastructure software, China is not just catching up—it is positioning itself to lead in certain AI domains.
Meanwhile, AI stocks continue to draw attention from institutional investors, particularly those with military and government contracts. With competition intensifying, companies like Palantir are expanding their partnerships to maintain a technological edge. As the AI arms race continues, investors and governments alike will be watching closely to see which nation pulls ahead in the battle for AI supremacy.
