Bonus: The DeepSeek Reckoning in Silicon Valley

M. G. Siegler is a writer and investor and the author of Spyglass. Siegler joins Big Technology for a bonus depisode to discuss DeepSeek R1, the Chinese open-source AI model and its impact on the tech industry. Tune in to hear why DeepSeek's ability to match OpenAI's performance at just 3-5% of the cost could upend the AI industry's economic model. We also cover the immediate market fallout, why Silicon Valley's scaling hypothesis might be invalidated, and what this means for companies like Microsoft, Google, and NVIDIA. Hit play for a timely analysis of one of the most significant developments in AI that could reshape the technology landscape. --- Enjoying Big Technology Podcast? Please rate us five stars ⭐⭐⭐⭐⭐ in your podcast app of choice. For weekly updates on the show, sign up for the pod newsletter on LinkedIn: https://www.linkedin.com/newsletters/6901970121829801984/ Want a discount for Big Technology on Substack? Here’s 40% off for the first year: https://tinyurl.com/bigtechnology Questions? Feedback? Write to: [email protected] Learn more about your ad choices. Visit megaphone.fm/adchoices

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Alex Kantrowitz?

  It's time for a bonus episode exclusively about DeepSeek R1 as the Chinese open source AI model royals markets and threatens to upend the generative AI industry. That's coming up right after this. This episode is brought to you by Genesis. What does it actually take to put a Gentic AI to work across an entire enterprise? I recently spoke with Genesis chairman and CEO Tony Bates about why orchestration is emerging as a competitive advantage in customer experience, and what companies need to get right in the AI era. Then I sat down with Adam Mitchell, head of enterprise business solutions at Voya Financial, to go inside a large-scale agentic CX transformation, including the business decisions, trade-offs, and lessons along the way.

• 0:45Alex Kantrowitz?

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• 1:17Alex Kantrowitz?

  Welcome to Big Technology Podcast. We're doing a bonus edition today exclusively on DeepSeek, what it means for the AI industry, what it means for markets. We're going to touch on technology, we're going to touch on business, and so thrilled that you're here for a bonus episode with us. We're joined today by MG Siegler. He's a writer and investor. He writes Spyglass. You can find it at spyglass.org. It's a great newsletter. It's a must-read for me. And he has a great piece out called "AI Oh Finds a Way: Has DeepSeek Changed the AI Game or Just Some Equations?" MG, great to see you. Welcome to the show.

• 1:53Speaker 01

  Great to see you, Alex. Thanks for having me back. And sorry for my crazy winter beard. It's a, it is very cold and rainy right now in London, so I'm not, not ready for spring yet.

• 2:01Alex Kantrowitz?

  If it fits the season. I was just out in London to interview Demis from DeepMind.

• 2:06Speaker 01

  That's right. I listened to that. That was very good. Yeah, and very timely.

• 2:09Alex Kantrowitz?

  Thank you. Yes, I can confirm, the sun does not shine in that city this time of year. So first of all, I want to talk a lot about, I mean, only about DeepSeek and DeepSeek R1 and what it means for the AI industry right now. It's, we are just about, we're going, the markets will open on this show, so I'll have a sense as to what it's going to do today. But it's looking pretty bad, especially for Nvidia and some others. As we get going, I just want to thank all the podcast listeners who pointed me to DeepSeek, because we had some comments that came in over the past few weeks. I was able to ask Demis about it. I was able to get it in as the lead story on Friday's show. So thank you. I appreciate all of you for pointing me towards DeepSeek. So let me just talk a little bit, because we didn't touch on this Friday, and we're going to definitely fill some holes that were left

• 2:51Alex Kantrowitz?

  on the Friday show. We talked a little bit about how much it costs to train this model, but not necessarily about the benchmarks it hit, and about the cost it costs to use this thing. So first of all, it's an open source model. It's much smaller than any of OpenAI's model, yet on the AIME mathematics test, it scored 79.8% compared to OpenAI's O1 scoring 79.2%. So it bests OpenAI's best model on that. It scored 97.3% on the Math 500, and it beat OpenAI, which scored 96.4%. Look, these are lots of different benchmark tests, but you can tell that just by these numbers, it holds its own. And now the most remarkable

• 3:32Alex Kantrowitz?

  part about this, it costs 55 cents per million token inputs and $2.19 per million token outputs. Just to give you a sense, OpenAI costs $15 per million input tokens and $60 per million output tokens. That's 3.5% of the cost that it costs to run OpenAI's O1 models. And you can do it again. It's open source. You could download it onto your computer and run it. So basically, what DeepSeek R1 has done in a nutshell, and then we'll turn it over to MG, is it has created models that are as performant as the state of the art, right? It's ranked number three in the Chatbot Arena at 3.5%, 3 to 5% of the cost. And that

• 4:16Alex Kantrowitz?

  has huge implications for the technology, for the business, and we're going to get into those. So MG, first question for you. If there was an AI Richter scale, right, assessing how big of an earthquake this is, what would you give this development?

• 4:31Speaker 01

  Um, so I mean, it depends on what, I guess, uh, level you're, you're, you're sort of measuring the magnitudes, right? Because as you noted, the markets will open and that's going to be, you know, right now, you know, last I looked in, in pre-market trading, Nvidia was down, I think 11, 10 to 11%, um, and that's the biggest hit right now. Microsoft, a bunch of others are like in the 3% range. So, uh, you know, from a pure market perspective, it seems like it's, let's, let's call it an eight, you know, it's not, it's not going to totally, uh, destroy the stock market right now, but it's going to be rough, it seems like today. Um, from a bunch of other perspectives, I think, you know, it's, it's

• 5:15Speaker 01

  probably a little bit less, um, of a, of a shake in these earlier days. And I think that's because everyone's still even now sussing out what exactly this means, um, for all different sorts of things. You know, you, you noted how much cheaper it is, um, to run than say OpenAI's models and, and, you know, over the weekend, just reading all of these sort of reports about the model and how many, um, individual startups are even just changing, swapping out, right, already, um, because it's so much cheaper, um, to do what they're doing right now by swapping in, um, DeepSeek's models. And so what does that do immediately? Like, you know, do we have to have price cuts immediately?

• 5:55Speaker 01

  And, and, you know, I think, um, you could sort of see OpenAI doing some stuff. I think Sam Altman tweeted, you know, maybe on Friday, like about how they were like bundling, rejiggering some of the bundles, right, that they have, like what's in the free offering and stuff. And it sort of feels like we're going to see more of that, um, you know, as, as a response, obviously, to some of this. But then, you know, there was a, there was a big report, uh, I think in the information about Meta's response to this in particular, which seemed pretty interesting in that, like, you know, that's all hands on deck, certainly. And there's like all these different teams meeting up. You and I remember that from the old school days of Facebook. And so, yeah, it's just like all of these companies are now scrambling.

• 6:38Speaker 01

  You have Satya Nadella tweeting out things, you know, which seem directly aimed at the market to try to, you know, ease that that pain a bit. But anyway, going back to the original question on the Richter scale, you know, overall, I think a lot of people are still figuring this out, but right now the market thing is going to be the most acute one because that's obviously going to open. And I think it's going to be pretty hard for, you know, this day at least. And then I think I read some of the early analyst reports on this and they're all over the place, right? Like there, there's some folks who are saying like, oh, this is, this is awful for Nvidia. Some folks are saying that, you know, this is not a big deal. This actually could be good in the longer run for Nvidia in ways.

• 7:22Speaker 01

  And, you know, and then from big tech on down, what the ramifications are there.

• 7:28Alex Kantrowitz?

  And you mentioned that some startups are already swapping in Deep Sea Car one for the models they're using right now. How widespread do you think that is? Are they, are any of the startups that you speak with saying, okay, well, to hell with OpenAI, to hell with Llama, time to put Deep Seek in? Or is this just beginning? Because it's again, something that dropped last week.

• 7:45Speaker 01

  Yeah, I think this is just beginning. I think, you know, that people will experiment with it, right? Just to see like how much you could, you know, get while swapping them out, given the price differentiation you were talking about. But also there's downsides, of course, like people have noted sort of the, you know, the censorship within China and of certain terms. And so, you know, I don't think everyone is quite certain what's in there. You know, it's an open source in that it's open weights, but it's not, you know, it's not clear exactly everything that's going on in there right now. And so I do think that if this proves out, say if, if Deep Sea can release another iteration of the model and it still is on the same sort of, you know, footing, I think that then you'll start to see more startups potentially taking it really seriously.

• 8:29Speaker 01

  I think now it's just a wait and see approach for sure and just people trying out to see if it is in fact as good as they say. Because I think, you know, part of this, like my initial gut reaction, you know, Deep Seek, obviously. As you noted, had been around for, you know, basically since December and didn't really get all of the the mass of Pylon until sort of Friday, right, when R1 came out. And in part, it's like, you know, I've just, I don't know why my mind was drawn to this, but it's sort of like when they were talking about the ru- the room temperature conductor, right, like, and everyone was talking about, oh, my God, like, there's this, there's this huge breakthrough that's happened, and this is going to revolutionize everything. And then it turns out, oh, you know, maybe there was some, some funny business in that claim, and maybe it wasn't, you know, all it was cracked up to be.

• 9:13Speaker 01

  And of course, that turned out to be the case. And so I'm not saying, obviously, that's not the case with DeepSeek. It seems like now this R1 release has legitimized it. And as you note on leaderboards and whatnot, people have been testing this. And again, the startups are part of that, that pressure test.

• 9:28Alex Kantrowitz?

  Right. And so the funny business, just to get this out of the way, the funny business might be on the training side. Like, we think that they trained it for much less money. We think that they changed it, trained it with inferior GPUs that have been sort of the only things they can get their hands on due to export controls. We're not 100% sure if that's the case.

• 9:48Speaker 01

  Right.

• 9:49Alex Kantrowitz?

  But I think the bottom line here is that this is an open source model. It has been replicated. I mean, it has been downloaded to people's computers and used as effective as it is. And I think that the thing is, the methods and the cost savings and the performance, that's all real. So even if, you know, basically, all of Silicon Valley, without those export controls, couldn't do this or didn't do this. And maybe it's because they had a different method, and we'll get into that. But the fact is that no matter, there's no putting the genie back in the bottle right now, which is that this company has created something that can rival OpenAI's performance at 3% of the cost. That's, that's the big thing. So.

• 10:29Speaker 01

  I, well, sorry, go ahead. I also just think, like, the overall mentality is one of the more interesting sort of earthquakes, to, you know, use your phrasing of it, that's happening, happening right now. It's like, and I think Stephen Sinofsky summarized this well. He wrote, you know, very long tweet thread, as he is wont to do, but then he also published it on his, on his newsletter as well. But he goes into the history, and he obviously has a lot of good historical context from Microsoft days on forward about what, you know, is, is going on here. But it's also. I think important to to talk through like how the constraints that were put in place by the US because of the, you know, everything going on with with chip constraints and and

• 11:13Speaker 01

  sort of forcing AI companies not to export to China, you know, led to sort of this this very interesting cauldron that I think could only happen in a place like China right now because they're so constrained. Whereas in the US, like it's still the period of abundance, right, with AI and everyone's going after the scaling. And it's and it's it's just not something they were going to focus on trying, you know, they're making the smaller models, they're making the mini versions of the models, and those are great. And we're seeing that. But China, you know, the folks working in China had to do this this way. And I just think it's something you couldn't have seen in hindsight arise out of the US in our current environment.

• 11:52Alex Kantrowitz?

  Right. Okay, so I want to talk quickly about the technology, very quickly about the technology, and then get into some of the more business side applications here. So, MG, could you tell us just at a really high level, what DeepSeek has done to be able to get these results? Because, you know, it's one thing to say, okay, they were able to do it on worse chips with a smaller amount of data. But I think just it's important to very briefly highlight just the technical technological innovation here.

• 12:24Speaker 01

  Yeah, I mean, so and, you know, I'm not a I won't be a technical expert on this, but from my understanding, it's basically, you know, obviously, as you know, it started the DeepSeek project started out of a hedge fund that was focused on quant trading, you know, in China. And they had acquired a bunch of Nvidia chips, I think they were H100s, you know, before all the import restrictions came in. And basically, they had those servers up and running. And, you know, presumably, they were running a bunch of different models, including some of OpenAI's, but including also a bunch of the Llama stuff that Meta's been working on. And, you know, they've just used the process of distillation to, you

• 13:07Speaker 01

  know, effectively bring those bigger versions of the the sort of state of the art models and distill them down into, you know, smaller models, which eventually led to this R1, you know, the equivalent of of O1 on on OpenAI's side.

• 13:24Speaker 01

  And again, for a fraction of the cost, fraction of the compute and a fraction of the size for these to be able to run. And that that latter part seems like it's it's sort of being under discussed right now, but is important. Because, yeah, all of these these models have constraints about how you can run them like on your personal machines, right? Because, you know, they're going to require so much RAM and so and so much memory to be able to do that. And if you can get them down to really small sizes, which again, the the bigger US companies have been doing with these mini models, but they're they're sort of taking this bifurcated approach, whereas, you know, now we're getting to the point with with this R1 model where it seems like it can run on pretty much a lot of different

• 14:06Speaker 01

  type of hardware, which again, they they need to do in China because of the the restrictions that they have there.

• 14:11Alex Kantrowitz?

  Right. And there's also a methodology change here, which is that they've gone from effectively self supervised learning, which is what has been used to train all of the L L Ms, all the big L L Ms to this point, to pure reinforcement learning, where the models tend to figure out what's what the right answer is on their own, which is just fascinating.

• 14:30Speaker 01

  Yeah, and it seemed like the, you know, sort of the American powers that be maybe felt like we weren't ready for that yet to happen, right? Like, that was always the hope that that we get to those points. And that, you know, we still were in the in the scaling point again, where, you know, you you need someone in the loop to be able to check and and make sure all these things are working. And China, you know, this this Chinese company, because of the some of the restrictions that we just talked about, like, just went for it. And, you know, it's proving itself.

• 15:00Alex Kantrowitz?

  Right. And and just to harp on one more technical issue before moving on, the distillation of models to me is fascinating, that they could take any big model and distill it using this form of training and effectively be able to replicate its performance. So I could take I could take like a llama model with just 70 billion parameters and distill it and then all of a sudden run it with this reasoning reinforcement learning style approach, and it's cheaper, more efficient. It's just, I mean, again, like, I think the entire world is still trying to wrap their head around this. And there'll be more on this feed to talk about exactly how impressive this is. But to me, in the early innings of this, that is astonishing.

• 15:44Speaker 01

  Yeah, and I mean, it again, at a high level, it makes sense. It's just, it's incredible how it's happened because like, do you need all of the world's knowledge, you know, in every single model for every single use case? Of course not, like, that's gonna be overkill for almost everything that you're gonna do. And so, does it point to a world where, yeah, we we sort of lead towards more of these specialized models that are distilled, and obviously, that's been happening. But this, this one is still, you know, a model that can effectively do most everything, um, distilled down from, from those bigger ones.

• 16:17Alex Kantrowitz?

  So there's one sort of big question that I think needs to be asked here, which is, there's been this, all Silicon Valley, and you point to this in your piece, all Silicon Valley has been operating on effectively the scaling hypothesis, which is that you add more compute, and we talk about it all the time on the show, add more compute, add more data, add more power, add more training time effectively to these models, and you will improve. And now, what DeepSeek has shown is that you can actually do all this without that. And so I'm curious if you think that this invalidates the scaling hypothesis? Because, and it might seem kind of like a, you know, obscure thing,

• 17:00Alex Kantrowitz?

  but it's very important because this sort of sets up the whole business conversation, which is if the scaling hypothesis is invalidated, then all that multi-trillion dollar investment in Nvidia, um, Nvidia CPUs? Or GPUs, my bad? Becomes sort of thrown into question. So what, what happens to the scaling hypothesis from here?

• 17:22Speaker 01

  And it's fascinating timing too, right? Because this is, this is at the same time that everyone has now talked about sort of the quote-unquote AI wall being hit, right? And even Demis, you know, when you, when you talk to him, he noted that he doesn't necessarily believe in, in, you know, a wall being hit, but he did acknowledge that things are slowing, and it'll just take longer to get more, you know, juice out of the squeeze, as it were, right? And, and so that's sort of the natural evolution that's been happening, and everyone is now pointing to it, or at least acknowledging that, that some aspect of that is real. And now, at the same time, this comes along and calls into sort of more question.

• 18:05Speaker 01

  There's one other element that sort of I think is related to this, which was the big news story last week as well, the Project Stargate, OpenAI and Nvidia and Oracle all coming together. And one of the more interesting elements of that was the fact that Microsoft is effectively pushing off the the compute costs to Oracle and and some of the other players in that situation. And, you know, there's all sorts of reasons, you know, potentially why they're doing that, obviously, given the the interesting relationship between OpenAI and Microsoft. But at the very highest level, again, if they're thinking that, you know, our capex is going to be, we've already stated, it's going to be 80 billion for the year,

• 18:50Speaker 01

  we don't want to add another several billion, you know, for this this particular project. And why would they do that? In part, probably because they're not necessarily sure that it makes sense to pay the billions upon billions to OpenAI to keep trying to scale on the frontier models. And this is, you know, sort of in line with what DeepSeek just did.

• 19:13Alex Kantrowitz?

  Right. Yeah, it's interesting. We're also talking about Andreessen Horowitz, who sat out OpenAI's last round. And we were wondering on the Friday show, maybe they

• 19:20Speaker 01

  I heard that.

• 19:20Alex Kantrowitz?

  saw this coming.

• 19:21Speaker 01

  Yeah.

• 19:22Alex Kantrowitz?

  And it is interesting. I mean, you you put it pretty, pretty perfectly in your story. You say, big tech companies are the now the most largest and sorry, you say, big tech companies are now the largest and most well capitalized in the world, which means that they have effectively all the money that they can put towards scaling. And the hammer met the nail. But there's no point hammering the nail after it's already been put into place. And that's the point that can't be predicted, but is obvious once it's done. The question is, if DeepSeek just pointed to the nail already hammered, effectively, did they just solve this? It's sort of like going up the the scaling question in a

• 20:03Speaker 01

  Yeah.

• 20:03Alex Kantrowitz?

  similar way.

• 20:04Speaker 01

  An analog for the same, the same thing, right? And and going back to the history of compute, like, right? All these, you know, the powers that be tend to spend at the time, tend to spend a ton of of capital on the build out of of whatever the new technology happens to be. And, you know, there's obviously, we all benefit from it in the in the long run, but in the short run, you know, this this segues into, I guess, you know, what's what's potentially going on with Wall Street and what it means for these larger companies with regard to the spend.

• 20:34Alex Kantrowitz?

  Yeah, and I just want to ask your the question that you put in your newsletter just to you directly. Did they just point to the nail like, is it done?

• 20:45Speaker 01

  I mean, again, I don't want to, you know, caveat this out, but I do feel like it's it's it's the exact question that everyone is sort of going to be scrambling to answer over this next week. And I think that it's not going to be as black and white as that for sure, but I do think if I had to guess at a high level, I do think that there's some element to, yes, the nail is already sort of driven into the board. And we're moving on to what the next steps are. It's not to say it's over and, and, you know, there's no innovation from here. But I think all of these things are in a way related like that. We've just been talking about and the fact that they're all coming together at the same time.

• 21:28Speaker 01

  I don't think it's a coincidence. I think it's because like, yeah, we're at the point where we now need to move on to the sort of the next phase of of the AI revolution, as it were.

• 21:37Alex Kantrowitz?

  Yeah, and I and let's get into the business and I'm I'm smiling here because I you're making me think of we have Reid Hoffman on the show on Wednesday, and I interviewed him before R1 came out. And the first half of the conversation is just talking about all the billions of dollars that have been spent and when they're going to get an ROI. And I mean, I'm still going to run the conversation, but there's going to be some context in there.

• 21:59Speaker 01

  Yeah, it's interesting knowing, yeah, after the fact. But and it's also, I think, Sinofsky brought this up too. And I was sort of looking into this more last week. You saw it was a smaller news item, but both Microsoft and Google had altered the way that they're basically bundling together AI within, you know, either the 365 suite and within the Google, um, Google suite of of apps. Because they're clearly still trying to figure out how exactly you you make money off of all this spend and what the right model is and and how you spur on usage of it. And this just comes in and throws a grenade, you know, into that that equation again.

• 22:38Alex Kantrowitz?

  And this gets us to like some of like the real thorny business questions. So just to kick this off, I took a look at what all the big tech companies were doing pre-market. So this will obviously change across the day, but I imagine they'll stay directionally kind of the same. Nvidia down 10%, Microsoft down 4%, Google down 3%, Meta down 2.6%, S and P down 2%. So this is all based off of this deep-seek reckoning or this deep-seek realization. And let me just put the sort of question to you, I think about as pointedly as I can, which is that the AI industry up until this point, like all the numbers we're seeing within Wall Street,

• 23:21Alex Kantrowitz?

  the trillion-dollar market caps, the billions of investment, the billions that have been raised by companies like OpenAI and Anthropic, from companies like Microsoft and Amazon, right? So this is basically the whole game here. They have effectively been what's been driving the numbers. And the question is, can we, you know, they basically, Wall Street has been following that and saying, we expect them to get a return based on those numbers. And in fact, a lot of this AI spend was just a wealth transfer, I would say, from like Meta Advertising to Llama, from Google Search Revenue to Gemini, from Microsoft Azure to OpenAI. So what happens here?

• 24:06Alex Kantrowitz?

  Because, you know, basically, if they, if a lot of the AI industry has been driven based off of subsidies coming from other businesses and doesn't need that type of spend anymore, like, does the party end?

• 24:19Speaker 01

  So I think it's different for each company. Probably Microsoft and Google are closest, you know, aligned in terms of where they net out. And it's sort of interesting, you know, the numbers you just rattled off with where the stocks are at. That feels, you know, just like a very. Clear picture from Wall Street what they think now, right? Like, they think Nvidia is going to get hit fast because in this doomsday scenario, because obviously they're the beneficiary from everyone, from all of those companies, all those other companies that you mentioned. Big tech is pouring as much money as possible as they can. They can't get enough chips fast enough into Nvidia. And if they pause that, that obviously is bad news for Nvidia in the short term.

• 25:02Speaker 01

  Again, I think there's longer term stuff that's different for Nvidia, which we can talk about. But to just hit on the rest of this question right now.

• 25:11Speaker 01

  I think that Microsoft and Google, which are, as we just mentioned, you know, are trying to sort of figure out the right models for how to charge for AI. I think that this puts them in a really tricky situation if the underlying economics just totally changed overnight of what AI's, yeah, underlying economic model should be. And so they were, you know, moving around different pieces, trying to get to the right end state so that, yeah, they could ultimately prove to Wall Street like, look, we're adding, you know, X amount on top of what we were already doing revenue wise, thanks to AI. And a little bit, there's a little bit of weird obfuscation stuff going on there, right? It's like, well, it's bundled in now to 365.

• 25:55Speaker 01

  And so, you know, we don't necessarily need to tell you exactly what the uplift is, but you could just, you know, assume that it's a part of this because it's all baked in. And AI is like, you know, the new internet and blah, blah, blah. And so, you know, there's ways that they can finesse the messaging around that. But, you know, to your exact question, I do think that there's varying degrees of being worried, certainly within Google and Microsoft. Meta is more interesting because their open source philosophy, open weight philosophy and model is so similar to what DeepSeek has done, right? And so the problem there, in my mind at least, is again, they're spending whatever Zuckerberg just threw out, 65 million or whatnot, he said, you know, at the end of last week,

• 26:38Speaker 01

  that they're going to spend on CapEx. And so why are they spending that amount now if, you know, DeepSeek can do it for, you know, pennies on the dollar, if not even less than that? And so what does that mean for their world? So in my view, high level, I think that. Meta is probably in a bit better position than the other ones, just because they, at the end of the day, they do want, like, you know, their whole philosophy is to open sources, not for necessarily altruistic reasons, but because they know that it's historically helped them, helped their business, um, you know, to, to open source these things.

• 27:17Speaker 01

  The question of if it's not them open sourcing it becomes pretty complicated if someone else's, you know, you have to use someone else's models, but they can pull back spend, it feels like a little bit easier than the other folks can. On the other end of the spectrum, OpenAI, like, they're, you know, the entire business is, is sort of built around being at the frontier and they've done a great job with that. They're a little bit different than, than Google and Microsoft in my mind, just because they've done a good job getting mind share, both in terms of brand and product, right? Like Chat, Chat GPT is number two in the App Store right now behind DeepSeek, uh, you know, for a reason, people are interested, they, it's a brand and they know it. And so what does it look like, though, if they're not the ones sort of powering the models?

• 28:02Speaker 01

  I don't think that they would give up and, and, you know, go with DeepSeek's model necessarily, but what does it mean if, if they're not sort of the only one or the main frontier, um, you know, model maker providing that? Like, so there's all sorts of interesting offshoots and ramifications of that.

• 28:17Alex Kantrowitz?

  So MG, there's like two views right now in terms of like what could happen with all this spending, right? One is Silicon Valley will continue to spend these billions and they might get, you know, incrementally better, uh, performance and stay slightly ahead of the open sources of the world, DeepSeek's of the world that can just emulate their models. The other side of it is that they continue to spend and then they basically hit AGI or like, you know what I'm saying? Like, if the, um, performance increases that we've seen with such, uh, little, uh, that, sorry, if the performance increases that we've seen with such efficient use of capital, uh, from DeepSeek can be emulated, then imagine what you could do with a hundred times the amount of spend.

• 29:00Alex Kantrowitz?

  So the models are about to become much more powerful and all these fantasies that people have about what they can do, many of which Demis and I spoke about last week, all of a sudden become feasible because the capital is there. So which side of?

• 29:11Speaker 01

  And that's, that's, that's a nice thing to say and like a nice high level mantra and many of, you know, many of the leaders of these companies will be saying that today to sort of try to calm all street. But at the end of the day. You know, aside from sort of OpenAI, which obviously is again tied with Microsoft and now Oracle. But besides them, the rest of these are public companies and Wall Street, you know, like it or not, they have a say sort of over what they're going to do. Like if they're going to get hammered, and this is something I've sort of been harping on for a while, not because I think that they were doing the wrong thing necessarily with the spend.

• 29:46Speaker 01

  But it's just obvious that like it always comes back around, right? Where it's like, I equated it that, you know, last year to when all the movie studios during COVID and TV studios. Were just bulking up on streaming, right? And just spending as much money as possible as they could in order to build up their streaming services. And Wall Street loved it at that time because, you know, Disney and everyone else was just gaining millions and millions of subscribers. And it seems like they had a path to take on Netflix and, and you know, this was the future of the industry. It's still, by the way, the future of the industry, but Wall Street then all of a sudden turned on all that spend. And decided like, you need to cut like spend X amount, you need to, you know, unfortunately cut the employee base and.

• 30:28Speaker 01

  And basically just become way more efficient while doing the same high level thing. And it was, you know, always obvious that at some point they were going to do that to the tech companies as well with regard to AI spend. And so again, they can all have the right mentality about like this is the future and say the right things that this is the future. And this spend is important and I don't disagree with any of that, but still they have to answer to Wall Street. It's, you know, to some degree, maybe Zuckerberg less so because he, you know, controls the, controls the company so strongly. But like certainly Microsoft and Google to a lesser extent are going to have to answer for a lot of that. Spend and this is the first real, real test. Meta had some of it, right?

• 31:10Speaker 01

  Like there was some backlash last year around their spend and certainly back dating back to their, the, you know, VR and AR and XR spend. And so they had to answer for some of that and Zuckerberg did, right? And he got rewarded for it after the fact. And that's like the game they're playing here. They know that if they cut spend because Wall Street doesn't like to see all the AI spend. They'll get rewarded in the form of the stock going up and then all the ramifications from that. And so it's natural that that is going to play out that way. And so. I think the narrative then shifts to other levels of not necessarily obfuscation, but other ways of framing it. It's like, okay, we agree that we shouldn't spend tens of billions

• 31:51Speaker 01

  of dollars on Nvidia server farms, but we need to build out, you know, our in-person AI robotics arms, right, in order to to keep these models and keep sort of the next phase going as we march towards AGI and yada, yada.

• 32:08Alex Kantrowitz?

  So markets just opened and Nvidia opens up down 11%. So still above $3 trillion. So it's not like the AI revolution is over, but down 11%. So just a cool, you know, a couple hundred billion dollars shaved off the market cap in a morning. Let me talk to you a little bit about what these companies are saying back to Wall Street or actually talking to Wall Street about to allow them to keep spending. So Satya Nadella is doing his tweets. He says, he's talking about Jevon's paradox. He calls, he says, Jevon's paradox strikes again. As AI gets more efficient and accessible, we will see its use skyrocket, turning it into a commodity we just can't get enough of. Let's say that happens.

• 32:48Speaker 01

  I don't know if you saw this. Last night, Gary Tan, you know, the president of YC tweeted the same thing. And so I'm like, is this coordinated? Or I mean, it is, you know,

• 32:57Alex Kantrowitz?

  There must be a group text going on.

• 32:59Speaker 01

  Yeah, there's a group text maybe going on where it's like, this is the answer. And it's not, it's not like a totally BS, you know, answer to it. But there's much more nuance and context that's sort of required to get to, you know, that being the excuse for this.

• 33:15Alex Kantrowitz?

  So let me just basically talk about the elephant in the room that's been hanging over this full conversation and will be sort of like the spoken or unspoken part of this discussion as it goes forward this week, which is that, let's say the cost of intelligence goes down to zero, right? So that's what everybody is basically aiming for. It's one of OpenAI's stated goals to make intelligence, you know, close to free as possible. They don't really make a lot of money selling off their API, or they even maybe might lose.

• 33:43Alex Kantrowitz?

  We need to see AI applications, like we need to see an economy that takes use of this technology that is so impressive, right? Like you look at the chain of thought even in DeepSeek and you're just like, how is a computer, you know, quote unquote, thinking through this stuff? But the economy needs to take hold of this powerful technology and make use of it and put it into play for really meaningful economic use. Whether or not the DeepSeek thing existed, right? Like billions of dollars of economic or trillions of dollars of economic value needed to be created from this generative AI moment.

• 34:16Speaker 01

  Yep.

• 34:17Alex Kantrowitz?

  And what do we have now? We have OpenAI, who has ChatGPT with 300 million users, which is okay, but still losing billions a year to run that thing. Maybe they'll be able to be more efficient and make those couple billion a year from it.

• 34:31Speaker 01

  Yep.

• 34:31Alex Kantrowitz?

  We have some enterprises putting this into play, but every enterprise I speak with, there's a couple use cases, cool use cases here or there, but mostly what you see is proof of concepts. And many of those proof of concepts aren't going out the door. So don't we need to see, one way or the other, AI applications, whether that's standalone or integrated within business software, that start to prove the real value of this technology that we just haven't seen to date?

• 35:02Speaker 01

  I mean, the answer is yes, of course. The reality, though, is, you know, maybe this, this confluence of events right now is going to help that because it's sort of just as forcing a fundamental rethinking of a lot of what, you know, we've just been, not going through the motions, but we've been on this path, right, to scaling, as we were talking about, and that, you know, even, right, like Sam Altman has said, like, they see line of sight now to AGI, they just have to, to, you know, just dot, dot, dot, underpants, and then profit from there.

• 35:39Alex Kantrowitz?

  Better get there now.

• 35:41Speaker 01

  But they say they have line of sight, right, to know what they need to do, and it's just a matter of execution and sort of, you know, getting everything aligned in order to do that. And if this moment with DeepSeek being the, you know, the Biggest catalyst thus far of it, if it doesn't cause the entire industry to sort of rethink that. And at the same time, to your point, like, you know, asking about, do, does that sort of drive us to move on from, yeah, just like this, this nonstop scaling of frontier models that is awesome technology, but unclear how it works in, from a practical standpoint. Do we start to, yeah, distill this, you know, for, for lack of a better phrase, down to actual products?

• 36:21Speaker 01

  And, you know, when I, when I think about that, that leads back to like, uh, whenever it was six months ago, seven months ago, when Apple did their Apple Intelligence stuff, which you and I talked about, right? And it's like, everyone jumps on Apple and, and there was another news cycle, I think, that this past week, because, uh, you know, Siri can't, can't, uh, correctly answer who won previous Super Bowls.

• 36:44Alex Kantrowitz?

  Yeah, the Gruber post was.

• 36:45Speaker 01

  Ridiculous.

• 36:46Alex Kantrowitz?

  Amazing.

• 36:46Speaker 01

  Um, but Apple's mentality from the get go with launching Apple Intelligence has clearly been, we need the, we, for lack of a better phrase, don't necessarily care so much about, yeah, the frontier of the vanguard of, of this technology. We care about the day to day usage of it, right? And, you know, they have a few things that are sort of front end facing that, that haven't really worked, that, that try to use AI like the emoji creator and things like that. But most of it is just baking it into their products. And that's what we've seen too, with, with obviously what we talked about with Microsoft and Google. They, they all have, you know, their own, like, some have video generation, some have some other of their own standalone products. For the most part, they're just going to be baked in.

• 37:29Speaker 01

  But, you know, to what we were talking about earlier, none of that is really, uh, the promise it felt like, right? Of, of what this larger movement was going to be and everyone's waiting for, you know, not, not necessarily AGI right now, but they just want some other forward facing, user facing.

• 37:49Speaker 01

  Um. Version of AI that that can be good and chat GPT has been the closest that we've gotten to that. And maybe some of these video products, you know, end up being the next, the next phase of that. But I think that you're right that this, that ultimately you have to get to something that that comes of this, that that really sort of moves it, moves all sorts of needles. And again, I wonder if this uh news cycle and and just pause now doesn't lead to more of that. I hope that that's the case.

• 38:19Alex Kantrowitz?

  Yeah, and I would say the Apple intelligence is almost the perfect example of the problem that I'm pointing toward, which is that we have this technology that's so promising and yet even Apple cannot implement it successfully. And that might, I mean, obviously it says something about Apple, but it might say something about the technology as well.

• 38:37Speaker 01

  Yeah, and you know, as with everything, like with everything in technology, I think about, you know, dating back to my reporting days and whatnot, it's just like having seen so much in a few different cycles now. Are we too early still, right? Like everyone, everyone has been talking about and believing that like this is the moment where this is like really happening and this is great. But I do think that if you took a step back, you might wonder if we're not still doing this too early, you know, and trying, and all of these companies are not raising way too much money. When the timing is just not right for exactly what you're, you know, trying to ask the question about. Like, how do you, how do you turn these into products? And how do you ultimately turn this into a business that returns the capital that was spent on it?

• 39:20Speaker 01

  Now, no company would admit that right now, but you know, hindsight will only prove one way or another whether that's the case. And I think everyone still remains super optimistic that now is the right time and you want to keep your foot on the gas. But again, this deep seek stuff sort of causes a pause and a natural reexamination of of just how much money to spend and and what what you should be focused on.

• 39:42Alex Kantrowitz?

  Let me ask you to put your investor hat on for a moment. Are there startups out there that would exist today that don't exist because?

• 39:51Alex Kantrowitz?

  Effectively buying compute from the APIs or running Llama is cost prohibitive, but they would exist if intelligence was zero. And that's effectively what DeepSeek is gonna put to the test.

• 40:02Speaker 01

  Yeah, that's really interesting. I don't, I don't, I don't wanna just try to come up with something off the top of my head, not that I know of, but I do think at a high level that your question is a really interesting one. And if, if this is going to be truly transformational, DeepSeek as a whole, it will lead to something like that, right? Like a bunch of companies coming out and not just, yeah, cuz it's not just the technical aspect, it's not just driving down costs cuz that seems like it's sort of going to happen as a result of that, which is great, but does this actually yield new companies that couldn't have existed beforehand? And I don't know, like, I can't think of any off the top of my head,

• 40:47Speaker 01

  but that's also why I'm not a startup founder and, and you know, hopefully there are startups out there that are, that are gonna latch on to this.

• 40:53Alex Kantrowitz?

  But something tells me that the answer's no. And the reason is, is because investors have been dying to throw money at AI companies and have been willing to lose a lot of money if the idea is promising enough. And I don't know, we haven't, we haven't seen a wave of AI startups hit. At least there have been many, but you know, they're not like, it's not like the, you know, the beginning of the mobile era where there was like a new consumer startup every day. It just isn't happening that way. In fact, most of the action is enterprise.

• 41:24Speaker 01

  One other just wrinkle and layer of that, which I feel like has been overshadowed in, in all of the recent news, but you know, we, we talked about and talked about a lot last year. But as the regulatory regime is changing now, if M and A sort of doesn't pick up with regard to exactly the type of companies you're talking about, right? Like they have great teams, they're working with, you know, this technology and they clearly know how to do things with it, but they haven't gotten the product right. They haven't gotten the business right. And so they're scooped up by the, you know, the Metas, the Googles, the Microsofts, the Open AIs of the world. And that, you know, in and of itself, won't be that interesting

• 42:07Speaker 01

  other than those companies getting good talent perhaps. But if it just reignites sort of, you know, a passion within really early-stage startup founders to keep.

• 42:19Speaker 01

  Reaccelerate sort of going after new problems, right? Like, I do feel like there was a bit of a chilling effect the past year because M and A had, you know, basically been shut off. That sort of kept people staying at Google and staying at Meta and staying at OpenAI, not forming new startups as they might have in in years past. Because they knew that, you know, there was, there was the potential, obviously, they pie in the sky, they want to build a big company, but there was also the potential, frankly, right to like, you know, sell, build something that's big enough to sell for multi hundreds, millions of dollars, if not billions of dollars, to some of these other companies. And so, you know, that might come into play with some of this.

• 43:01Alex Kantrowitz?

  All right, let's put a bow on this conversation. You say the real problem is that it won't be so simple to simply pull back spend. Beyond a lot of it already being committing, being committed, there's obviously still a very real risk that DeepSeek is just a blip on the radar, and not the bomb that blows up everything. What are we looking like? What are we looking at over the next couple of months when it comes to the aftermath of this earthquake to go back to our original question?

• 43:27Speaker 01

  And so that's just a call out to the, you know, the, the obvious thing that everyone likes to overreact, obviously, to, to, you know, big news stories and big news cycles. And again, as we've been talking about, like, this is legitimate, but how legitimate is it? Like, right? Like, so we'll even see potentially play out over the course of today in the stock market, like, do they start to get nerves calmed a bit by, yeah, this talk of like, well, actually, this isn't so bad for Nvidia because while it hurts their, their immediate, it could potentially hurt their immediate money coming in the door. In the longer run, you know, it's, it's again, Jayvon's paradox stuff where it's like, yeah, it's, it's going to raise, raise all boats.

• 44:11Speaker 01

  As, as this just permeates everything. And so they need chips and yada, yada. And so that could help.

• 44:18Speaker 01

  But yeah, I mean, I think that it won't be so easy also for, as I noted, for all these companies to pull back spend because they've already committed to buying X number of, of H200 chips and, and then soon enough, we'll get the next iteration, you know, announced down the road. And so all these supercomputer.

• 44:37Speaker 01

  Mega clusters of data centers that are being built right now, they're just not going to, you know, put the brakes on all of that because there's a risk they're all playing in the same game, right? And if one of them pauses, maybe they get a short-term Wall Street, you know, pat on the back. But if they're wrong, that's like catastrophic. And that's, you know, it's like a fire, firing the CEO type of fence. Um, you know, if, if this is just, uh, you know, even a blip on the radar, obviously undersells it a bit. But if this is not ultimately like a real fundamental sea change situation and is more just like a, a step on, on the road, um, they might still want to keep their foot on the gas.

• 45:18Alex Kantrowitz?

  Yeah, it's gonna be very interesting to watch. The website is spiglass.org. The piece A I F finds a way. Joined, of course, by M G Seeler. M G, great to see you again. Thanks for coming on the show.

• 45:29Speaker 01

  Thanks for having me.

• 45:30Alex Kantrowitz?

  All right, everybody. Thank you for listening. We'll be back on Wednesday with my interview with Reid Hoffman. Obviously a little different now, but maybe as M G puts it out, uh, maybe we shouldn't be overreacting too much. So looking forward to speaking with you then, and we'll see you next time on Big Technology Podcast.

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