Uploaded January 2025 | Updated September 2026, 1 week ago
Until last weekend, i.e., pre-DeepSeek, the AI story was one built on three pieces - that the AI product/service market would be huge (trillions of dollars), that it would require a huge entry fee (in investments in super computing and at a) and that this entry fee would create an end game, where relatively few companies with pricing power would generate super-normal profits. That story has had enough force behind it to push up the market capitalizations of the companies that are actors in this story (from AI architecture companies like Nvidia, Vistra and Constellation Energy to firms in AI product and service space like Palantir) trillions of dollars.
The big story with DeepSeek is that it alters the AI story in a fundamental way, by opening up a pathway into the business without the massive investments in AI chips and data. That, in turn, has the potential of commoditizing the end market for AI products and services, with lots of competition and much less in profits. In my view, speaking as an AI novice, DeepSeek will create a bifurcated market for AI products and services, with a low-grade AI segment (composed of products that don't need super computers and data) and a high-intensity AI segment, with very different characteristics in terms of competition and profitability.
Slides: https://pages.stern.nyu.edu/~adamodar/pdfiles/blog/DeepSeek.pdf
Blog post: aswathdamodaran.blogspot.com/2025/01/deepseek-crashes-ai-party-story-break.html
Valuations:
1. Nvidia in September 2024: https://pages.stern.nyu.edu/~adamodar/pc/blog/Nvidia2024.xlsx
2. Nvidia in January 2025:
https://pages.stern.nyu.edu/~adamodar/pc/blog/NvidiaJan2025.xlsx
Until last weekend, i.e., pre-DeepSeek, the AI story was one built on three pieces - that the AI product/service market would be huge (trillions of dollars), that it would require a huge entry fee (in investments in super computing and at a) and that this entry fee would create an end game, where relatively few companies with pricing power would generate super-normal profits. That story has had enough force behind it to push up the market capitalizations of the companies that are actors in this story (from AI architecture companies like Nvidia, Vistra and Constellation Energy to firms in AI product and service space like Palantir) trillions of dollars.
The big story with DeepSeek is that it alters the AI story in a fundamental way, by opening up a pathway into the business without the massive investments in AI chips and data. That, in turn, has the potential of commoditizing the end market for AI products and services, with lots of competition and much less in profits. In my view, speaking as an AI novice, DeepSeek will create a bifurcated market for AI products and services, with a low-grade AI segment (composed of products that don't need super computers and data) and a high-intensity AI segment, with very different characteristics in terms of competition and profitability.
Slides: https://pages.stern.nyu.edu/~adamodar/pdfiles/blog/DeepSeek.pdf
Blog post: aswathdamodaran.blogspot.com/2025/01/deepseek-crashes-ai-party-story-break.html
Valuations:
1. Nvidia in September 2024: https://pages.stern.nyu.edu/~adamodar/pc/blog/Nvidia2024.xlsx
2. Nvidia in January 2025:
https://pages.stern.nyu.edu/~adamodar/pc/blog/NvidiaJan2025.xlsx
