AI's Sputnik Moment

AI's Sputnik Moment

Last week DeepSeek emerged and Andrew and I spoke about it on our video conversation. On Monday the stock market crashed. Below is a short segment that ends with Andrew stating "it could mean a sharp correction for the markets". We never give investment advice, but this was spot on.

Here is the clip.

This week we have been bombarded with further discussion about DeepSeek. It has become clear that the hedge fund that developed DeepSeek has over time invested in about 50,000 NVIDIA GPUs costing around $1.5bn. Far short of Stargate's $500 billion target but still too much for most players.

And as if last week's news wasn't enough we now have another new model - Tülu 3 -from Allen Institute (https://decrypt.co/303703/remember-deepseek-two-new-ai-models-say-theyre-even-better) that is seemingly even better and is even more open source.

Both Stratechery and Semi-Analysis have great analysis of Deepseek (see below).

So what does it all mean?

I think that depends on who you are.

For OpenAI it means that there is competition. Sam Altman already acknowledged the need to speed up their release schedule and stay ahead. Are Language models are not dead. They are the basis on which all smaller models are created. But large models can now be built more cheaply and are good enough for many use cases. The cost of training new models will not decline but the cost of building derivative models has fallen off a cliff. Open source will become a real solution for many businesses.

For Meta it is a very concerning moment. Meta's Llama is the prime open source model, along with Alibaba's Qwen. Now DeepSeek has open sourced its Llama equivalent - R3 - and its reasoning o1 equivalent - R1. This gives developers simple and cheaper choices that are as good or better than Llama. It threatens Meta's entire strategy.

For Microsoft it means that the dependence on OpenAI is a thing of the past. Its rapid embrace of DeepSeek (see below) is a great example of its desire to reduce reliance and costs. It also probably means that Microsoft does not need to build its own super expensive model.

For Google it is more bad news. Google has to build its own models. That will not get cheaper. And it can't do what Microsoft does and rely on third parties.

For Amazon it is, similar to Microsoft, able to incorporate their party efforts. Costs can go down.

For Nvidia the impact is probably overstated. The large buyers still need to buy Nvidia GPUs and train new large models with hundreds of millions of parameters. OpenAI, Google, Amazon, Microsoft and the rest will all remain customers.

For Grok/Elon Musk it is both good and bad news. Good that OpenAI has to stay on its toes. Bad that cheap and effective models are coming. Grok 3 is soon to be launched and the bar has been raised very high now.

For AI users this is only good. More models, better models, cheaper models. And with "reasoning" and able to act as agents not just chatbots. Customers too will benefit. The pile of cash available to purchase AI is large and the platforms, apps and services available is growing exponentially. This will be trillions of dollars and will accelerate to that more rapidly.

Marc Andreessen described DeepSeek as a Sputnik moment for AI. Sputnik triggered the US to accelerate spending and achievement. The same will be true here.

Essays of the Week