AI Disruption - Shaking up the Established Vendors

I can't remember any other time in my career when I have witnessed so many disruptions on so many fronts concerning technology. It is changing the way we work, changing the ecosystems in multiple industries, and destroying many traditional businesses that were reluctant to face the reality that AI is replacing some things they do.

Organizations such as Microsoft, OpenAI, Oracle, Meta, Alphabet, and many others have poured billions into building large language models. Each one of these organizations doesn't want to be left behind.

The shockwave has hit the technology market with a Chinese technology company, DeepSeek AI, which has suddenly taken the crown from ChatGPT as the most downloaded free app in the U.S. App Store. Being the top downloaded app is not the news, but the news is that DeepSeek's R1 model matches the capabilities of leading AI systems but at a fraction of the cost. According to the Chinese engineers, they needed only about $6M in raw computing power to build their new system. That is about 10 times less than the tech giant Meta spent building its latest A.I. technology, based on New York Times reporting. The article states the following:

The world’s leading A.I. companies train their chatbots using supercomputers that use as many as 16,000 chips, if not more. DeepSeek’s engineers, on the other hand, said they needed only about 2,000 specialized computer chips from Nvidia.

Furthermore, the New York Times article states:

The constraints on chips in China forced the DeepSeek engineers to “train it more efficiently so it could still be competitive,” said Jeffrey Ding, an assistant professor at George Washington University who specializes in emerging technology and international relations.

The shockwave was evident, and when the news came out, we could see its impact on the stock markets. Nvidia, Microsoft, Amazon, and Alphabet stocks slid due to the fear of competition. In addition to the capabilities of the R1 model, DeepSeek AI has open-sourced it, allowing developers worldwide to use and adapt it freely. This allows others to build and distribute their own products using the same technologies. The open-source ecosystem for AI gathered steam in 2023 when?Meta freely shared an A.I. system called LLama.

The question we all have about this news is: How will this impact the overall market, especially venture capitalists pouring billions into startups building their AI models? The second question is whether the results have indeed been verified and confirmed. It only took $6M to train the R1 model and did not even use the latest chip technologies. The chips used were not subject to the strict export controls the U.S. government applied to U.S. companies.

According to the New York Times, DeepSeek channeled its profits into acquiring thousands of Nvidia chips by 2021, which it used to train its earlier models. The company has become known in China for "scooping up talent fresh from top universities with the promise of high salaries and the ability to follow the research questions that most pique their interest."

Also, it is interesting that DeepSeek does not make products for consumers, allowing the engineers to focus entirely on research. OpenAI has unveiled a new reasoning system called o3 that exceeds the performance of existing technologies but is not yet widely available outside of OpenAI.

Having worked with tens of different independent software vendors during my career, we live in a time where each software vendor needs to evaluate what technology to apply and how to apply it. An ISV can make a massive mistake of investing in something offered "free of charge" or part of a more extensive offering or even as open source. I can't be without thinking of the early AI adopters who invested their time and money on things that are now part of platforms from larger vendors such as Microsoft, Amazon, Alphabet, OpenAI, etc.

Management teams, board directors, and management teams must be on top of things, educating themselves on where the market is going and how it will impact their business.

I would be interested to hear how you feel about this news and whether it impacts your business or future decisions.

Yours,

Dr. Petri I. Salonen

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