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Rather than understanding DeepSeek’s R1 as a watershed moment, leaders should think of it as a signal of where the AI landscape is right now — and a harbinger of what’s to come. They should consider five lessons: 1) we’re moving from models that recognize patterns to those that can reason, 2) the economics of AI are at an inflection point, 3) the current moment shows how propriety and open source models can coexist, 4) silicon scarcity drives innovation, and 5) in spite of the splash DeepSeek made with this model, it didn’t change everything, and things like proprietary models’ advantages over open source are still in place.
DeepSeek’s launch of its R1 model in late January 2025 triggered a sharp decline in market valuations across the AI value chain, from model developers to infrastructure providers. Investors saw R1, a powerful yet inexpensive challenger to established U.S. AI models, as a threat to the sky-high growth projections that had justified outsized valuations. For those who have been paying attention, however, the arrival of DeepSeek — or something like it — was inevitable.
