When the Chips Are Down: The overnight AI Revolution Reshaping Silicon Valley

Richard Hadler here from Founders Capital. We scour Europe for the top 1% of Start-ups led by epic Founders, giving them access to our world-class investor & partner network to scale their ventures to heady heights.

If there’s one thing AI has proven, it’s that it doesn’t believe in taking a break. While us humans need a strong coffee and a weekend to recover from disruption, AI just keeps powering forward, day and night. DeepSeek’s rise feels like the industry equivalent of being jolted awake by an overly ambitious fitness app yelling, “You’re behind on your steps!”

Seriously… Us Investors barely had time to celebrate the last ‘groundbreaking’ model before scrambling to assess how this latest development upends the game.

I think it’s fair to say that the rise of DeepSeek, a Chinese-developed AI model, has sent tremors through the tech world, echoing the economic disruption of the original “China shock.” Just as China’s entry into global markets in the late 20th century revolutionised trade and manufacturing, DeepSeek’s breakthrough in artificial intelligence may reshape the global AI landscape. This time, it’s not about cheap goods—it’s about powerful, accessible AI models that threaten the dominance of Silicon Valley.

DeepSeek’s R1 model, which rivals OpenAI’s market-leading technologies at a fraction of the cost, is a striking development. Unlike OpenAI’s proprietary systems, DeepSeek has embraced open-source principles, making its technical workings transparent and appealing to developers. The result? A potential reshuffling of the AI ecosystem that could reduce costs and democratise access—but at what cost to the tech giants?

A Threat to the Hyperscalers

The fallout has been immediate and dramatic. Major AI-focused companies, including Nvidia, Alphabet, Amazon, Microsoft, and Meta Platforms, saw nearly $1 trillion wiped from their collective market value. Nvidia, whose advanced chips power much of today’s AI, faces an existential question: if DeepSeek can achieve comparable results without relying on its cutting-edge hardware, what does that mean for Nvidia’s future growth?

The stakes are high.

Hyperscalers like Meta and Microsoft were expected to invest nearly $300 billion in AI-focused capital expenditure this year alone. For these giants, DeepSeek’s achievement is not merely a challenge—it’s a disruption of the foundational belief that better hardware equals better AI.

Yet, I implore you to ignore the naysayers and over dramatic tweeters… the game is far from over.

DeepSeek’s R1, while impressive, doesn’t represent the pinnacle of AI.

It has yet to achieve artificial general intelligence (AGI), the humanlike capability that companies like Meta and OpenAI are pursuing. The giants still hold an edge in enterprise-level solutions, with robust ecosystems designed for scale, reliability, and privacy.

For investors heavily backing Anthropic, OpenAI, and other leading LLMs, DeepSeek’s emergence is a stark reminder of how quickly the game can change in AI. If a relatively unknown player can achieve comparable results with a fraction of the resources, what does that say about the sustainability of billion-dollar valuations tied to infrastructure-heavy models?

Is the reliance on proprietary technology and expensive hardware becoming a liability rather than a strength?

The question now is whether these giants can pivot fast enough to maintain their lead—or if DeepSeek’s approach signals a fundamental shift in the economics of AI that even the biggest names cannot ignore.

A Reshuffling, Not an Overthrow

For businesses, DeepSeek’s emergence may be less about dethroning the leaders and more about enabling broader access to AI. I saw someone tweet earlier, not every driver needs a Ferrari. In the AI context, having a model that is “good enough” at a fraction of the cost could be transformative for companies seeking to integrate AI into customer service, automation, and workplace tasks.

There is no denying that the potential benefits for corporate users are enormous.

If reliable AI tools become significantly cheaper, companies can increase profitability by reducing costs associated with AI implementation. This “second China shock” could accelerate adoption across industries, unlocking new efficiencies and opportunities.

But let’s not underestimate the giants.

My money is on this development stoking OpenAI, Anthropic, and their peers into swift action. These are companies built on relentless innovation, and DeepSeek’s breakthrough is likely to act as a catalyst rather than a threat. With their vast resources and talent pools, the major players are well-positioned to refine their models, reduce costs, and deliver enterprise-scale solutions that outpace any newcomer. In the end, this competition will only fast-track the role AI plays in our daily lives, pushing it further into the mainstream and opening up transformative possibilities across industries.

The Great Giveaway Begins

The parallels to the original “China shock” are hard to ignore. While it disrupted industries and cost jobs, it also increased purchasing power for US households and reshaped global trade. Similarly, DeepSeek’s rise represents both destruction and opportunity.

For investors and tech giants, this is a moment of reckoning.

For everyone else—businesses, developers, and consumers—it may herald a new era of AI accessibility and innovation. The race for AI supremacy isn’t over. Instead, it’s evolving, and the benefits of this evolution may soon be felt far beyond Silicon Valley.

The reshuffling is underway, and as with all disruptive innovations, those who adapt will thrive. The AI revolution is far from its final chapter—DeepSeek is merely the latest twist in a story that is still being written.

Until next time!

Cheers,

Rich

Co-Founder & General Partner
Founders Capital
+44 7900 500 367
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