In a significant escalation of the ongoing U.S.-China technology rivalry, Chinese artificial intelligence startup Deepseek is reportedly training its next major AI model using thousands of advanced Nvidia chips that were smuggled into the country in defiance of U.S. export controls. The allegation, first reported by The Information and citing six sources familiar with the matter, highlights the intense global demand for high-performance AI hardware and the elaborate methods being employed to circumvent American restrictions aimed at curbing China's technological ascent. This development underscores the persistent challenges faced by U.S. authorities in enforcing these bans and raises critical questions about the future competitiveness of Chinese AI firms on the world stage. At the heart of the report are Nvidia's powerful Blackwell processors, a class of graphics processing units (GPUs) that are explicitly forbidden for export to China under stringent U.S. regulations designed to protect national security.

The scheme described by sources is a complex logistical operation designed to mask the ultimate destination of the sophisticated technology. According to the reports, the Blackwell chips were first shipped legally to data centers located in approved countries, likely in Southeast Asia.[1][2][3] In these locations, Nvidia or its partners would install and test the hardware as part of a legitimate setup.[1][4] Subsequently, operatives would allegedly dismantle the servers, move the sensitive components through customs under false pretenses, and then painstakingly reassemble the powerful computing systems inside Chinese facilities.[1][2][4][3] The operation is said to favor smaller, eight-chip servers, which are easier to transport covertly and maintain.[1] This "phantom data center" strategy represents a sophisticated attempt to procure cutting-edge technology that Washington deems critical to maintaining a strategic advantage in the field of artificial intelligence.

The allegations have drawn a cautious but firm response from Nvidia, the world's leading designer of AI chips. In a statement, the company said it had not seen any "substantiation or received tips" of phantom data centers being constructed and then deconstructed for smuggling purposes, calling the described scheme "farfetched."[2][5][4] However, the company affirmed its commitment to investigating any credible reports of possible smuggling.[1] Underscoring the seriousness of the illicit trade, it has also been reported that Nvidia is actively developing a new software-based feature to track the geographical location of its Blackwell chips and future models.[1][6] This technology, if implemented, could make it significantly more difficult to operate smuggled hardware in China, potentially by tying the chip's functionality to its verified location.[6] Deepseek itself has not issued a public comment on the matter.[7] The U.S. government, meanwhile, has been actively cracking down on illicit chip flows through initiatives like "Operation Gatekeeper," which recently led to charges against individuals in a separate $160 million smuggling ring that illegally funneled Nvidia H100 and H200 chips to China.[8][9][10]

The situation reveals the immense pressure Chinese AI companies are under to secure top-tier hardware to remain competitive. While Beijing has heavily promoted the use of domestically produced semiconductors, reports suggest that Chinese alternatives, such as those from Huawei, still lag behind Nvidia's performance for the demanding task of training large-scale AI models.[1][2] This dependency persists despite Deepseek's public statements about working with domestic chipmakers.[7][11] The specialized architecture within Nvidia's Blackwell chips is reportedly crucial for Deepseek's specific approach to AI, which utilizes techniques to reduce the operational costs of its models.[1] The startup gained global recognition for developing powerful AI models with notable efficiency and at a fraction of the cost of Western counterparts, a feat accomplished using a large stockpile of older-generation Nvidia GPUs acquired before the most stringent U.S. export bans were enacted.[4][3][11] Access to the latest Blackwell technology would grant Deepseek a significant advantage, not only within China but also in the fiercely competitive international AI landscape.[2]

The alleged smuggling operation and Deepseek's reported involvement highlight the high-stakes nature of the global AI race, where access to computational power is a primary determinant of success. It demonstrates the limitations and enforcement difficulties of unilateral export controls in a globally interconnected supply chain. As the U.S. government attempts to throttle China's access to key enabling technologies, the incident shows that determined actors will find creative and illicit means to acquire them, driving a silicon underground market. This ongoing struggle places companies like Nvidia in a difficult position and complicates the geopolitical landscape, as evidenced by recent policy shifts from the Trump administration to allow sales of slightly older, yet still powerful, H200 chips to China.[7][12][13] Ultimately, the Deepseek case is a stark illustration that the battle for AI supremacy is being fought not only in research labs but also in the shadowy channels of international smuggling, with profound implications for technology, trade, and national security.