27 Jan 2025 Blog Alku Sirén, Senior advisor

DeepSeek’s “Sputnik moment” signals new era of AI competition

The release of DeepSeek’s AI model signals a fundamental shift in the global technological competition. Alku Sirén blogs about how this development will reshape business environments worldwide.

Share

According to breaking news, Chinese company DeepSeek has been able to match Western AI capabilities at a fraction of the cost. This challenges core assumptions about computing requirements as well as Western technological superiority.

DeepSeek has been able to perform comparably to leading Western AI models at approximately 1/45th of the computing cost, and has been able to do so, despite US export controls on advanced chips. The achievement demonstrates how technological advantages can suddenly be upended through innovative approaches.

The traditional Western advantage of superior computing infrastructure and companies might not be as superior as was previously assumed. DeepSeek’s breakthrough in training efficiency suggests that innovation can unexpectedly overcome resource constraints. This development could accelerate the bifurcation of global technology into competing spheres. This potential bifurcation was identified in our AI Scenarios program last spring. Companies will need to navigate increasingly complex choices about technological opportunity and adaptation.

At this time, technological advantage comes from vision, courage, speed, and execution rather than simply exclusive access to computing power. Access to talent is paramount. Suddenly, it is not self evident where exactly the Western advantage is.

This competition will likely be more intense than previous technological races. AI advantages could translate directly into broad economic and strategic superiority. That raises the stakes for all parties.

The rapid advancement of AI technologies creates cascading effects across markets and societies. The effect is further compounded by the open-source release of powerful AI models. Competitive advantage starts to crack when many players release their models as open source. The rise of agentic AI and AI-operated computers is adding complexity to all of this.

The market reaction to DeepSeek immediately resulted in significant declines in major tech stocks, wiping out approximately $1 trillion in market value. One of the open questions is whether NVIDIA can sustain 90%+ gross margins on data center GPUs (= graphics processing units used for training and operating AI models). It’s reasonable to expect (and evidence suggests) that the race towards ever more efficient computing capacity isn’t going to disappear.

Until recently, even very AI savvy people involved in AI development waved off European abilities to train new foundation models due to insufficient capital. The low cost of the training of the DeepSeek model proved this wrong. This indicates that even AI experts operate in quite deep uncertainty. 

These emerging dynamics may remind us of previous times when revolutionary technological advancement was experienced. Those advancements historically led to colossal productivity growth. People’s lives were profoundly transformed during those times. Leaders who understand and adapt to this new reality of high-pressure technological competition, and the resulting geopolitical and societal transformation, will be better positioned to navigate the challenges ahead.

This transformation extends beyond market dynamics. We have entered an era where AI development increasingly resembles the high-pressure learning-by-doing innovation environment of World War II or the Space Race. The announcement of the $500 billion Stargate project in the US signals a shift toward massive state-directed technological mobilization. This represents a departure from pure market logic and continues the ongoing change from global market capitalism to strategic capitalism.

Wondering how to go about with AI?

Whatever the subject matter, our consultants apply their seasoned understanding about society, the green transition, operational environment, organizational culture or industries – to name a few – directing AI to deliver exact and relevant results.

Want to hear more?

Contact us!