China’s DeepSeek has shaken up the AI world with the release of an open-source AI model that reportedly outperforms OpenAI in multiple benchmarks. What’s even more surprising is that the company claims that its artificial intelligence technology cost only $5.6 million to develop.
This number is cause for concern, especially since companies like OpenAI and Anthropic spend hundreds of millions of dollars each year developing their large language models. Meanwhile, tech giants like Microsoft are expected to spend $80 billion in 2025, and Meta expects spending to be between $6 billion and $65 billion this year, with most of it going to Nvidia’s GPUs.
As an investor in OpenAI and Anthropic through Fundrise, as well as an owner of most large U.S. technology stocks, DeepSeek’s performance piques my interest.
Necessity is the mother of invention
DeepSeek was founded in 2023 by Liang Wenfeng, the former CEO of High-Flyer, an artificial intelligence-driven quantitative hedge fund, and uses open source methods for artificial intelligence development. This strategy enables the global developer community to examine, enhance and innovate their software.
DeepSeek claims that its R1 model matches or exceeds leading products from OpenAI and Meta in benchmarks such as AIME 2024 (mathematical tasks), MMLU (common sense), and AlpacaEval 2.0 (question-answering performance). It also ranks high on the UC Berkeley Chatbot Arena leaderboard. All this is incredible with such limited resources.
The company’s mobile app launched in early January 2025 and quickly rose to the top of iPhone download charts in countries such as the United States, Australia, and the United Kingdom. Part of DeepSeek’s uniqueness is its AI model R1, which interprets its responses before giving them a response. Inference – a key differentiator from competitors such as OpenAI’s ChatGPT.
How can a small startup with fewer than 200 employees and a budget half the retirement budget many personal finance enthusiasts consider ideal be able to compete effectively with the American giants? The answer may lie in necessity. When something becomes imperative, innovation often follows.
Survive at all costs
As an analogy, consider Financial Samurai, a two-person team (my wife and I) that, despite a limited budget, is able to compete effectively with sites with legions of writers, editors, and freelancers. If we lost everything and needed to make millions online to rebuild our net worth to support our children, I believe we could. There is nothing that parents are not willing to do for their children.
However, if Financial Samurai performs the same as DeepSeek, the traffic generated by the website will be the same as new york times— A media giant with approximately 1,700 journalists and 5,800 employees. Such an achievement would be almost impossiblewhich is why it’s hard for me to believe that DeepSeek only spent $5.6 million without significant support from the Chinese government.
the other side of the coin
Scale AI’s 28-year-old CEO Alex Wang, who lives in the United States, told CNBC:
“There are more H100s in Chinese labs than people think,” he said, referring to Nvidia’s GPUs, which are subject to export restrictions to China. “My understanding is that DeepSeek has about 50,000 H100s, and obviously they can’t talk about those because it violates U.S. export controls.”
The logical conclusion seems to be that DeepSeek has far more resources than it has disclosed to the public. Once the initial panic subsides, those with insider knowledge may reveal the true extent of DeepSeek’s capabilities and support.
What I think will happen and how I plan to invest in the AI war
Clearly, none of the U.S. AI companies will stand idly by while their future and fortunes are threatened. Here are my predictions:
- The United States will adopt open source artificial intelligence models to increase efficiency and accelerate innovation.
- Nvidia and other AI chip makers may face temporary declines of up to 20-25%, only to be followed by a rebound as AI adoption accelerates due to Jevon’s Paradox. Jevons’ paradox states that in the long run, improvements in resource utilization efficiency will lead to an increase in resource consumption rather than a decrease.
- The Trump administration will take additional measures to protect the U.S. artificial intelligence industry. The announcement of a $500 billion investment in artificial intelligence infrastructure led by Oracle, OpenAI and SoftBank shows how seriously the United States takes this race.
- Big tech stocks like Microsoft, Meta, Apple, Amazon, and Palantir may fall 10-15%, but they will rebound as lower artificial intelligence costs lead to higher profits in the future.
Given these trends, I buy on dips Large U.S. tech stocks and private AI companies. Lower costs mean greater adoption of AI and ultimately higher profitability for these companies.
Real estate demand may also rise
If the S&P 500 faces a secular decline of 10%-20% over the next 3-6 months, Treasury yields may decline as investors seek the safety of risk-free returns.
Lower Treasury yields, in turn, lead to lower mortgage rates, driving increased demand for U.S. real estate. This may remind investors of the growing disconnect between residential and commercial real estate values and the stock market since early 2023. Sexy and everyday practical.
I will continue to do dollar-cost averaging analysis on the S&P 500, private AI companies, large technology companies, and residential real estate. It is during moments of market panic that disciplined investing becomes most critical. When you focus on your long-term goals, whether that’s retirement or securing a future for your children, it’s much easier to deploy capital during a downturn.
One thing is certain: Artificial intelligence and the investment landscape are evolving rapidly, creating risks and opportunities for those who understand.
Readers, what do you think of DeepSeek’s open source AI model? Do you believe that the company really only spent $5.6 million to effectively compete with the likes of OpenAI, Anthropic, Google, and Meta? Is this the beginning of the end for Magnificent 7, or do you think big American tech companies will innovate to meet the challenge? How are you deploying capital during the current panic sell-off?
Note: I wrote this article on January 27, 2025 at 4:30 AM (PST) after reviewing all available information. I’ll update it with new details as I run the slopes of the Palisades in Lake Tahoe.
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