The sudden emergence of the Chinese startup Deepseek in generative AI had a significant impact, causing a drastic drop in market value for leading companies in the sector. This event raised important questions about efficiency, capital allocation, and competitive advantage.
The competition in artificial intelligence is just getting started.
When ChatGPT was introduced in late 2022, there were immediate concerns about the potential lag of major tech companies, particularly Google, due to the transformative capabilities of generative AI. However, Google, Meta, Microsoft, Apple, and others swiftly responded by integrating AI into their core strategies to keep up with technological advancements and market demands. Despite the market appearing to trend towards consolidation with the emergence of only two new players, OpenAI and Nvidia, the arrival of Deepseek suggests a different trajectory. Similar to the internet boom in the 1990s when Google entered the scene as a latecomer, it is premature to assume that current frontrunners will remain unchallenged in the long term.
Restriction encourages creativity.
Many people think that innovation requires abundant resources such as time, investment, technology, and people. However, there are numerous historical examples that show otherwise. Having a clear goal and limitations can actually spur the search for unconventional solutions. Deepseek faced restrictions due to a lack of access to Nvidia’s advanced chips and limited capital compared to Silicon Valley companies like OpenAI. Despite these challenges, Deepseek managed to develop an AI training system that uses fewer parameters, costing less than $6 million and taking just two months to complete. This is in contrast to OpenAI, which spent over $100 million on its model training. Despite using outdated technology and having fewer resources, Deepseek achieved comparable results with ChatGPT and even surpassed it in some benchmark tests. Sam Altman from OpenAI praised Deepseek’s achievement as “impressive.” Additionally, Deepseek has created an open-source solution that allows other companies and researchers worldwide to benefit from their innovations and enhance their training strategies.
The AI’s Cold War
In the 20th century, there was a race for space exploration, while today there is a competition for dominance in the field of artificial intelligence. China has significantly outpaced the U.S. in AI patent filings between 2014 and 2023. It has become clear that AI is the defining technology of this decade, building upon previous advancements in digitalization, internet, mobile networks, and cloud computing. Those who lead in AI will gain a significant competitive edge. China recognized this early on, as seen with the success of TikTok in the realm of social media. Investment in AI is expected to increase in the near future, with even President Trump acknowledging the significance of Deepseek’s development.
The AI market has been transformed by Deepseek, offering consumers access to generative AI at a lower cost and quicker innovations post-earthquake, making it beneficial for them to stay updated.