Markets reacted sharply to DeepSeek’s R1 model announcement, sparking debates about its impact on AI development and global competition. This episode examines innovations, market implications, and advancements in the future of AI and consumer accessibility.

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The market absolutely cratered yesterday In fear of what deep seek presented but Should it have today we are separating Hype from hyperbole when it comes to This Chinese AI model that has everyone Talking all right friends well here we Are day two of deepsea coverage I think We might be starting to be saturated Here but when I was looking across the News today it was very clear that we Just needed at least this one followup To really deal with the second day Analysis of deep seek particularly Because of the market implications the Fact that the president in the United States is now talking about it so what We're going to do today like I said is Try to separate hype from hyperbole give Some of the updates and try to leave on The other side with an understanding of How we should be thinking about deep Seek what it means for the AI industry So that we can get back to talking about Other things by which of course I mean Agents kicking it off though like I said Wall Street was in outright Panic as Soon as the market opened ultimately the NASDAQ fell by 3% led by a 177% Wipeout For in viia nearly $600 billion were Wiped off of nvidia's market cap which Is the largest one-day reduction in Stock market history overall the NASDAQ Lost a trillion dollars in value to put It in perspective Wall Street editor for

The Economist Mike Bird wrote in total Market cap the Nvidia sell off today is A little bit bigger than if the entire Listed Market of Mexico went to zero and A lot of the coverage on the first day Or two that this went mainstream took Things kind of at face value baser and Ling managing director at Union private Bank said deep seek shows that it is Possible to develop powerful AI models That cost less it can potentially derail The investment case for the entire AI Supply chain which is driven by high Spending from a small handful of Hyperscalers others thought that this Portended something even bigger on the Horizon perpetual kagin and existential Blow hard also someone who has me Blocked on X Nasim TB says that he Thinks that this Nvidia route is just a Hint of what's coming down the line Writes Bloomberg TB said too many Investors have been bidding up prices of Firms related to AI without properly Knowing the details of how it functions Or is able to succeed he described Technology firms as gray swans because Investors underestimate the deviations In their prices that are possible in a Day doomsayers got a Dooms say right More sober but still concerned analysis Was reflected in this Bloomberg piece Meta and Microsoft show AI spending can Be a double-edge sword with this piece

Being an all points considered rational And somewhat more calm discussion of the Good and the bad of big spending from The Magnificent 7 in this AI space Speaking of The Magnificent 7 there are Also plenty of people out there who are Effectively making an argument similar To what I did yesterday which is that it Feels very much like the market was Looking for a reason to repic Particularly Nvidia but the Magnificent Seven and big tech stocks in general the Way that I've viewed the market for the Last few years is that the introduction Of chat GPT happened to coincide with The end of the zerp era and the Beginning of rate hikes throughout Basically the entire period of the rate Hiking part of the cycle AI enthusiasm Was the Bull workk against broader stock Malaise when the hiking cycle ended and The Cutting cycle began Wall Street had Other things to look look forward to but Nvidia just kept performing so well that It didn't really have a chance to repic And take all of its hopes and dreams out Of that particular stock and the handful Of other stocks around it that Represented something similar every time We have any sort of catalyst that can Possibly be a reason why Nvidia might Not be the stock market second coming we Get some sort of reaction like this Max Gman senior VP at Franklin Templeton put

It even more simply saying today's moves Show just how precarious this Market Setup is when valuations stretch to the Sky it's easier for small trembl to make The entire Market Rumble but outside of My contention that the stock market was Just stock marketing what are other Reasons why we might not want to be as Scared as these Market investors clearly Were yesterday first of all there Continues to be a loud chorus who just Simply do not believe that we're getting The full story when it comes to what Deep seek actually has done former Nvidia leader buan tungu said so you're Telling me that a Chinese hedge fund Released an llm with unverified claims About its training setup and efficiency Which ended up wiping out trillions of Dollars in the US Stock Market and we're Supposed to believe there is nothing Shady going on Nagal writes is Everything selling off because of Something a Chinese company Self-reported investor Jeff Lewis Meed It even harder covid came from a bat Equals deep seek cost 5.57 million to Train then again angelist founder Nal Rabant responded to Jeff saying smart Technical teams are already starting to Confirm that the techniques in resulting Cost savings are real and so perhaps a Better argument than China based Conspiracy is just that there seems to

Be be a fundamental misunderstanding of How this is likely to impact the demand For compute John Stokes writes what R1 Does is a new type of scaling it's also GPU intensive in fact the big mystery Today in AI world is why Nvidia dropped Despite R1 demonstrating that gpus are Even more valuable than we thought they Were no part of this is coherent Nvidia Made that point as well a spokesperson Called Deep seeks R1 model a quote Excellent AI advancement they said deep Seeks Works illustrates how new models Can be created using that technique Leveraging widely available models in Compute that is fully export control Compliant the spokesperson added Inference requires significant numbers Of Nvidia gpus in high performance Networking we now have three scaling Laws pre-training and post-training Which continue and new time test scaling Somewhat more crassly laoa cap writes Everyone has the Deep seek thing Literally act backwards the hyperscalers And Frontier llms will learn sluse Whatever they can from it along with Everything else that's on their road Maps to make their models even better And then exponentiate them with these Looming Giga clusters there's virtually No scenario in which they actively want Less compute as their models improve the Better they get the better they can be

Productized those products need to be Served to more customers Etc deep seek Just made AGI and all of the associated Infrastructure needs to serve it more Likely sooner isan actually thinks that A lot of the Bluster is what he calls an Over rotation because of China he writes Deep seek could have come out of some Lab in the US Midwest like some CS lab Couldn't afford the latest Nvidia chips And had to use older Hardware but they Had a great algo and systems department And they found a bunch of optimizations And train a model for a few million Dollars and low the model is roughly on Par with 01 look everyone we found a new Training Method and we optimized a bunch Of algorithms everyone is like oh wow And starts trying the same thing great Week for AI advancement no need for us Markets to lose a trillion in market cap The tech world and apparently Wall Street is massively over rotated on this Because it came out of China I get it After everyone has been sensitized over The H1 BLM uproar we're conditioned to Think of OMG immigrants China as some Kind of alien other as though the alien Other Chinese researchers are doing Something special that's Out Of Reach And now China the Empire is somehow Uniquely in possession of super Efficient AI power and the US companies Can't compete like no these guys are

Basically working on the same problems We are in the US and not only that they Wrote a paper about it and open source Their model it's not actually some sort Of tectonic geopolitical shift it's just Some nerds over there saying hey we Figured out some cool here's how we did It maybe you'd like to check it out and So his argument overall is that this is Less of a Sputnik moment Sputnik he Wrote showed that the Soviets could do Something the US couldn't and by the way Didn't publish all of the technical Details and half the blueprints instead He thinks the better analogy is the Google moment in 2004 he writes deep Seek is much more like the Google moment Because Google essentially described What it did and told everyone else they Could do it too so while the stock Market may be overreacting in fact Tom Lee called this the worst overreaction Since the 2020 pandemic outbreak it is Definitely raised competitive Spirit AI Zard David saaks writes deep seek R1 Shows that the AI race will be very Competitive and that President Trump was Right to resend the Biden EO which Hamstrung American AI companies without Asking whether China would do the same I'm confident in the us but we can't be Complacent open AI Sam Alman wrote deep Seek R1 is an impressive model Particularly around what they're able to

Deliver for the price we will obviously Deliver much better models and also it's Legit invigorating to have a new Competitor we will pull up some releases But mostly we're excited to continue on Executing our research road map and Believe more compute is more important Now than ever before to succeed at our Mission the world is going to want to Use a lot of AI and really be quite Amazed by the nextg models coming look Forward to bringing you all AGI and Beyond One person who firmly is in the camp of This is generally a good thing and that Making AI cheaper is a good thing is President Trump himself who spoke about Deep seek explicitly in an appearance Yesterday and we'll come back to this Idea in a moment that the real winners In all of this are us as the consumers However it's important to detour for Just a moment while we're on the China Subject that a lot of the additional Reactions were a reminder around what it Meant to actually use these models Luke De pulford writes just FYI deep seek Collects your IP keystroke patterns Device in etc etc and stores it in China Where the data is vulnerable to Arbitrary requisition from the state he Then pointed to their own privacy policy Where they say this open AI Steven hi Highle writes Americans sure love giving

Their data away to the CCP in exchange For free stuff investor Joshua Kushner Writes Pro Amer technologists openly Supporting a Chinese model that was Trained off of leading us Frontier Models with chips that likely violate Export controls and according to their Own terms of service take us customer Data back to China we also saw Discussion here around what this all Meant for those export controls controls The financial times ran a very Representative opinion piece titled us Export controls have forced Chinese tech Companies to be more Innovative miles Brundage writes unfortunately this Narrative won't die and I'm extremely Concerned that the Trump Administration Might believe it and be pressured by Nvidia to believe it to be clear the US Reversing export controls is the Absolute best possible outcome for deep Seek miles had tweeted back in December Deep seek uses compute efficiently that Means export controls are Counterproductive gotcha let's take away American AI company compute to make them Efficient wait what the flip side of This is that even with concerns around China having access to more users data Many pointed out that because they Released the API at the same time people Didn't just have to use the Deep seek App perplexities AR ofan shinas writes

The world's most powerful reasoning Model deep seek R1 with reasoning traces Is now on perplexity for supporting your Daily Deep Web research enjoy Samuel Hammond also made a similar Point Commenting on that specific opad that I Just mentioned he writes this piece is Wrong on several levels deep seek train On H1 100s their success reveals the Need to invest in export control Enforcement capacity next Chain of Thought and inference time techniques Make access to large amounts of compute More relevant not less given the Trillions of tokens generated for Posttraining also we're barely one new Chip generation into the export control So it's not surprising China quote Unquote caught up the controls will only Really start to bind and drive a delta In the US China Frontier this year and Next deep seek CEO has himself said the Chip controls are their biggest blocker The export controls also apply to Semiconductor manufacturing equipment Not just chips deep seek is not a Sputnik moment their models are Impressive but within the envelope of What an informed Observer should expect Imagine if US policy makers responding To the actual Sputnik Moment by throwing Their hands in the air and saying ah Well might as well remove the export Controls on our satellite Tech it would

Be a complete non seiter now one thing That the technology industry loved about The Deep seek announcement was that it Was a true open source release complete With the API and what's more what this Allows for is Integrations into other Services that aren't just going to be Handing data over to this CCP perplexity CEO arvan shrinivas writes essentially The Deep seek you get within perplexity Pro searches is American both in values No censorship and in hosting and storage Of your data when someone asked but You're still subject to the internal Censorship that was trained into the Deeps Ki model right arvan writes no Pointing to a pro search for who is the President of Taiwan that actually gives The answer friend of the show Venice AI Has also integrated deep seek CEO Eric Vorhees writes if you want to use deep Seek but don't want all your convos Going to the CCP use venice. a all Convos are private stored only in your Local browser now this doesn't answer The concern entirely at the time of Recording deep seek is still the top Free app on the Apple App Store ahead of Chat gbt threads Gemini you name it when Our Avent of us again tried to explain To investor Bill Amman why the fact that They could put the Deep seek model in an American shell like perplexity made it Less of a security concern Amman said

Won't most users just download the app And not go through the trouble of the Workaround you describe above which Based on those apps or results is a Legitimate concern Deep seek for their part have taken Advantage of their viral moment actually Deciding to release a set of New Image Models called Janice Pro the models can Function as both Standalone image Generators and image analysis tools for Multimodal AI deep Seeker claiming that The models outperform open AI Dolly 3 And stability AI staple diffusion XL on Leading benchmarks the models don't seem To have been stacked up against xai's Aurora or black forest Labs flux model Like R1 the model comes with a unique Architecture which deep seek describes As a quote novel autoregressive Framework that can both analyze and Create images DSE also claim efficiency improvements Over rival models stating that they were Quote aiming to achieve a balance Between performance and computational Cost deep seek has also had to Temporarily limit new user registrations Apparently for a large scale malicious Attack although some are wondering if It's just their infrastructure Struggling to keep up with Peak demand And so where are we left after all of This when it comes to the markets as I

Said I think it's an overreaction I am Firmly in the camp that believes that a Reduction in cost of AI is going to Increase demand for AI and that the Demand is going to need more compute to Be serviced taking that a step farther Though some have pointed out that not Only is Wall Street not necessarily Thinking about this in the right way Long term but that even if they are There's simply no denying that the cost Of intelligence going down is great for Consumers investor hasib kesi writes Intelligence is now way cheaper than we Thought this is great for all consumers Of AI meaning you and me remember the NASDAQ is an index of producers not Consumers the price of oil plummeting is Bad news for oil companies but but great For those of us who drive investor VJ Ready extended the idea of javon's Paradox which we talked about yesterday And made it clear that it's even Potentially better than we think he Writes so what is javon's AI Paradox as The cost of AI goes down the usage of AI Goes up making a resource cheaper Increases overall consumption sometimes More than you'd expect we've seen this Play out across storage virtualization Cloud computing and now ai take AI Agents for example and let's extend Javon's Paradox to agent Paradox as the Cost and latency of AI are driven down

We start developing agent-like systems That act more autonomously AI gets Cheaper faster we will simultaneously Push for more complex reasoning and Autonomy two trends that can be Intention this is especially true in Complex multi-agent systems where we Need better reasoning and hence more Computation to reduce Butterfly Effects And reduce compounding errors ultimately He writes there's near unlimited demand For compute and we're just scratching The surface with multimodal models Agents embodied AI Etc his point though Ultimately is that when it comes to Agents the cost and latency of AI going Down not only is going to increase the Usage of Agents it's going to improve Their reasoning I think when all is said And done the big impact of deep seek Over the last week has been to shake off Dust and cobwebs of a priority Assumptions we didn't even realize we Were making across the AI industry it is Supercharging competitive Dynamics Making it easier for AI startups to Experiment with new products and Generally likely to accelerate the next Wave of what AI can achieve not without Risk not without cost not without Challenge but still net net it's hard Not to to see it as a pretty exciting Time at least sitting from the consumer Seat I hope and I believe guys that this

Will be the last time I have to talk About this in quite this depth for some Time I have some cool things coming up Later this week including an interview With the founding engineer of notebook LM for now though that is going to Conclude the second day of deep-seat Coverage appreciate you listening or Watching as always and until next time Peace