The news of Nvidia's death has been greatly exaggerated, ubiquitous AI is good for companies and consumers, and there has never been more opportunity for you to seize than exists in this moment. Buckle-up 🚀 more to come.
February 10, 2025
I’ve been asked a lot, had tons of discussions, and seen many hot takes about DeepSeek and the future of AI value accrual this week. Here’s my take:
DeepSeek shocked markets last week by releasing its open-source R1 model with capabilities effectively on-par with OpenAI’s top models, at a fraction of the cost. It’s true the training metrics are misleading and they clearly distilled leading models, but that ignores the real breakthrough. R1 achieved cutting-edge performance with an order-of-magnitude lower cost by using novel reinforcement learning techniques and mixture-of-experts reasoning. ‘Necessity is the mother of invention’.
The 'picks and shovels' of the AI value chain are not worthless (i.e. Nvidia). Historically innovation happens in periods of intense early investments and innovation in infrastructure, eventually breeding competition and price compression, which then gives way to ubiquity, which then gives way to massive value accrual in applications and integrations.
Cisco —> Amazon, eBay, Google;
CDNs —> Facebook, Instagram, Youtube;
VMware —> AWS, Azure, and Google Cloud;
ARM/Qualcomm —> iOS, Android.
Today, while AI infrastructure is estimated to capture ~85% of current value accrual, as technology matures, semiconductor innovation is commoditized and value accrues to whomever is closest to the end customer—just as it did with the PC, dot com, web 2.0, cloud, and mobile eras. As foundation models become smarter, cheaper, and more accessible, differentiation moves from spending more on GPUs to driving killer UX and delivering value.
In a future where foundation models approach AGI, applications can only build moats on (1) novel UX and (2) proprietary data. These companies will consume narrow workflows end-to-end. And yes, whoever builds AGI will accrue value, but that alone will likely be distilled and commoditized too.
In summary: the news of Nvidia's death has been greatly exaggerated, ubiquitous AI is good for companies and consumers, and there has never been more opportunity for you to seize than exists in this moment.
Buckle-up 🚀 more to come.