All of us could be wrong about DeepSeek and OpenAI

CHINA’S DeepSeek has unleashed a new wave of hype around artificial intelligence (AI). But amid the noise, one thing is clear: Everyone has an opinion, but no one has the answers to the various issues that have surfaced.

DeepSeek’s competitive pricing for a comparable AI performance raises a critical question: Is massive spending the only path to AI supremacy? This puts pressure on the US tech giants to justify their current strategies. Yet, the tech titans remain undeterred.

Over the past two weeks, Alphabet, Amazon, Meta Platforms and Microsoft have collectively pledged a staggering US$325 billion in capital expenditure for 2025. Are they doubling down on a winning strategy or clinging to an outdated playbook?

History offers clues, but only if we learn the right lessons.

Breaking historical norms

While historical events offer valuable lessons, they do not always predict the future. The shift from desktop to mobile computing provides a compelling example.

When Apple unveiled its iPhone in 2007, many analysts dismissed its hardware-focused strategy. Their argument hinged on a familiar pattern: Over time, consumer hardware tends to become commoditised. If the iPhone becomes popular, they reasoned, its unique appeal would fade as competitors come in with cheaper imitations.

This was not a baseless concern. The era of the personal computer (PC), the previous dominant computing platform, was marked by fierce price competition among hardware manufacturers. Even Apple’s Macintosh PC fell victim to the cut-throat competition in the 1980s and 1990s. In short, the precedent was clear: Hardware eventually becomes a commodity.

However, today, nearly 18 years later, Apple boasts more than 2.35 billion devices in circulation, generating upwards of US$200 billion in annual iPhone revenue. Clearly, the popular smartphone has defied the conventional wisdom of hardware commoditisation.

Therein lies a lesson. When considering the future of AI, the iPhone’s success serves as a crucial reminder of being wary of preconceived notions. The emerging industry may evolve in ways we cannot yet imagine.

Breaking the Highlander fallacy

The AI landscape is increasingly defined by a clash between two distinct approaches: closed models, championed by OpenAI, and open-source models, exemplified by DeepSeek. Some may consider the debate settled, and say that open-source models are winning.

Even Microsoft chief executive Satya Nadella, despite his company’s substantial investment in OpenAI, candidly admits that AI models will become commodities ultimately.

But do we really believe there can be only one outcome? Too often, we fall prey to the “Highlander” fallacy, assuming that one side can win only if the other loses. This zero-sum mindset blinds us to a range of possible future scenarios.

Think about the mobile operating system (OS) market. On one side, you’ve got Apple’s closed iOS, running on 2.35 billion devices, and, on the other, Google’s open-source Android, on a massive three billion devices. Crucially, they have each found their own area to thrive in.

Apple continues to dominate in the premium-smartphone market, while Android is all about getting Google services out there.

Can OpenAI replicate this coexistence, thriving alongside open-source models? Could we see large, proprietary models handling general use cases, while smaller, specialised models address niche needs? Could there be a main AI model, with a supporting cast of smaller models? Your guess is as good as mine.

One thing is for sure. With DeepSeek’s arrival, the ball is in OpenAI’s court. OpenAI CEO Sam Altman’s recent Reddit AMA (Ask Me Anything) offered a candid assessment of the company’s position, conceding that it had been “on the wrong side of history” regarding open-source and that its competitive advantage has narrowed.

The future could include new devices too, as Altman is working with Jony Ive, a key designer of Apple’s iPhone.

Breaking the loser’s curse

The Highlander fallacy also fosters the misconception that those who do not win will inevitably be left behind. In the process, it overlooks the potential of diverse paths that could lead to success.

If you view the mobile OS market with this narrow lens, you would label Meta Platforms and Amazon as failures for their inability to challenge iOS and Android. It’s not like they did not try.

Back in 2013, Meta, then known as Facebook, came out with its own device with a home-screen layer called Facebook Home. A year later, Amazon made a foray into the mobile market with the Fire Phone. Both efforts were shuttered within months of their launch. By all accounts, these were massive failures.

But the missteps did not stop Meta and Amazon from carving their own paths to success despite lacking their own mobile OS. Both companies are now worth over a trillion dollars, despite ceding the mobile OS market to their rivals.

Here is another twist. Do you know who were among the biggest “losers” in the shift from desktop to mobile? In my book, it may be Microsoft and Nvidia.

Nvidia tried to break into the smartphone market but threw in the towel when it failed to gain a foothold. Microsoft, on the other hand, had long held a monopoly in the desktop OS market, but failed to extend its dominance to mobile devices.

But, are we really going to brand Microsoft and Nvidia as losers, even though they got the short end of the stick in the smartphone arena? Today, both are at the forefront of the AI revolution, proving that setbacks don’t preclude future triumphs.

Get smart: stay humble

Amid the noise, it is important to remember that ChatGPT is barely two years old, a stark reminder of the industry’s infancy. If history teaches us anything, it is that we may want to put our egos aside and accept that there are developments that cannot be known ahead of time.

The AI story is still being written. Multiple winners may emerge; the current front runners could falter, and the future winners may still be on the sidelines.

But we have two advantages. First, we are witnessing this evolution at first hand and we have a front-row seat to innovation as it happens. Second, time is on our side. Big returns unfold over the long term, giving us time to assess the landscape and identify the most promising opportunities.

Apple, Alphabet, Amazon, Meta, and Microsoft did not become trillion-dollar companies overnight. The returns were delivered over many years, not months. Patience is our ally and will serve us well.

The writer owns shares of Apple, Alphabet, Amazon, Meta Platforms, and Microsoft. He is co-founder of The Smart Investor, a website that aims to help people invest smartly by providing investor education, stock commentary and market coverage.