The DeepSeek wake-up call: What it means for the future of AI.

DeepSeek wake-up call

The market reaction to DeepSeek’s AI breakthroughs has been extreme. As the news spread, markets reacted, and investors were worried about the disruption to the status quo of the AI industry. DeepSeek’s story teaches us critical truths about technology, innovation and greed.

1. Engineering loves constraints

DeepSeek’s success also demonstrates the power of constraints. The Chinese engineering team behind the project had limited resources, so they had to be creative and efficient. This is a recurring theme in innovation history.

From the early days of Silicon Valley where scrappy start-ups outmanoeuvred the corporate giants to the rise of mobile where hardware limitations spurred software innovation, constraints have always been the catalyst for breakthroughs. DeepSeek’s engineers didn’t have unlimited budgets or access to the latest and greatest hardware. Instead, they focused on optimising algorithms, reducing computational overhead and finding elegant solutions to complex problems. Their success is a reminder that innovation is not just about throwing money at a problem – it’s about thinking differently.

2. Open beats closed

The biggest lesson from DeepSeek’s rise is the power of the open systems. In an age where AI models are being treated as proprietary IPs, DeepSeek is the opposite. By being open source they are rebalancing the AI equation. History has shown time and again that open systems outperform closed ones. The internet itself is a testament to this principle. Open standards and collaborative development have consistently driven progress, right from the time of Linux. It will likely accelerate innovation, and lead to more robust and widely adopted AI solutions.

3. Small teams, big impact

The story also underscores the power of small, focused teams to achieve the "impossible." Time and again in tech history, small groups of talented individuals have outperformed larger, better-funded competitors. From the early days of personal computing, where garage start-ups revolutionized the industry, to the rise of mobile computing, driven by agile teams, the pattern is clear: size and resources are no match for creativity, determination, and a clear vision.

DeepSeek's engineers, working with limited resources, have demonstrated that innovation is not a function of scale. This should serve as a wake-up call to larger AI firms not to be complacent in their dominance. The next breakthrough could come from anywhere—and often does.

4. Lowered barrier to entry

This is one we’ve seen play out many times in the history of technology. When the cost of computing power drops dramatically, new markets emerge and application proliferate. DeepSeek’s innovations will make AI much cheaper and more accessible, expanding its reach.

Cheaper, more efficient AI doesn’t shrink the market; it grows. Just as cloud computing made data storage and processing power more accessible to everyone, this enables researchers and developers to use AI in ways that were previously impossible. DeepSeek’s breakthroughs will enable start-ups that are building on top of models to train their own lean models.

5. The human element: greed and over investment

Finally, the markets remind us of the all-too-human capacity for greed, over investment, and irrational exuberance. The AI industry has seen its fair share of hype, with valuations soaring to unsustainable heights and investors pouring unimaginable sums of money into it. DeepSeek's success is a reality check, forcing the market to confront the fact that not all AI investments are created equal.

This is a story as old as markets themselves. From the dot-com bubble to the crypto craze, the pattern repeats: excitement leads to over investment. The intrinsic value of AI remains immense and by making AI cheaper, more efficient, and more open, DeepSeek is laying the groundwork for its next phase of growth. Those who understand the lessons of history will see this moment for what it truly is: the beginning of AI's next chapter.

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Originally published as an Op-ed in The Hindu BL on Jan 30, 2025.