China's DeepSeek Has Exposed Silicon Valley's AI Blind Spots

American players lost sight of value-for-money in their GenAI race

- Parmy Olson

Last year, the CEO of a leading AI firm was asked at a private Silicon Valley dinner about how his company differentiated from others building "foundation models," the systems underpinning chatbots like ChatGPT.

Did he have a moat? Yes, he answered, according to another CEO who was there. No one else had raised the billions of dollars that he had. That was his moat.

This short-sighted approach to doing business, that huge sums of money alone can keep competition at bay, is why giants like Meta Platforms are now in panic mode about DeepSeek, a Chinese company that's built a formidable AI model for roughly the salary of a single AI executive in the U.S. Its breakthroughs now pose a shift in the balance of power and a reckoning for tech giants, who are suddenly no longer the guaranteed winners of AI.

By Monday, the panic had spread to Wall Street, as Nasdaq 100 futures fell by more than 3% and put tech stocks on track for a $1 trillion rout.

The reason is obvious. OpenAI recently raised the largest venture capital round in history ($6.6 billion), while Mark Zuckerberg has said Meta will spend up to $65 billion on AI projects this year. Tech giants have been spending heavily on AI, and now it looks like a giant waste.