DeepSeek's $6M Training Headline Was Fake Marketing

0:00So Deep Seek's$6 million training headline was fake marketing. Did you know that? I saw rumors and on X, there was people breaking down charts of where of NVIDIA's revenues coming from. And they're showing one of the largest buckets being Singapore. And they're like, why would Singapore need all of these chips? And I don't know if this is true or not. But on X, people are claiming the Singapore revenue was in theory, people from China buying the chips, but they're skirting around regulations. Yeah. Oh, wow. Neil didn't bring his iPad today. So the thing with DeepSeek is, just so everyone that doesn't know yet, DeepSeek is this model that came out actually Q4 2024.

0:41So it's this hedge fund that launched this in competition with OpenAI, for example, or Gemini. It's an LLM. Chinese hedge fund. Chinese hedge fund. So it's a China-based company. And the headline was, oh, wow, this company spent$6 million and it's basically at par with OpenAI's O1 model, which is their best one right now. Actually, O3 just came out today. The mini launch just came out today. But O1 is their top tier one. You're paying$200 a month for it. It's expensive, right? The cool thing is, this one's way cheaper. It's free for people to use. It's open source, which is very big. And you're getting a 93 % discount when you're using it.

1:16It's roughly 1.45 the cost. Yes. And the beauty of this, so even this week, I was talking to my CTO. I was like, oh, I think what we're going to do is we're just going to buy a lot of these NVIDIA computers that are coming out. And we're just going to stack them up and run DeepSeek locally. It's going to be way cheaper, which we're still going to do, by the way. But the thing is, the$6 million headline, you remember Jin Yang from Silicon Valley? No. Oh, you didn't watch Silicon Valley? Okay. So it's funny. This guy, Jin Yang, he's like, the show is Silicon Valley. You know that, right? Yeah. But when you first asked, I thought you meant, do I know this person from actually the Valley?

1:47Oh, no, no. But I didn't watch the show either. So Silicon Valley, it's like a funny show created from the creator of Beavis and Butthead. And there's this guy, it was all about Silicon Valley, like tech, right? And there's this guy, Jin Yang, who would always, he's a Chinese dude, and he would always steal technology and do all these things. And he's like, okay, yeah, you guys spend billions of dollars training your models like OpenAI or whatever. He's like, I just spent$6 million, which is nothing. Peanuts compared to that. The reality is, Brad Gerstner from Alternative Capital, and David Sachs actually said this.

2:17There's a guy, Dylan Patel, which is Neil Patel's cousin. Not really. But there's a new report by leading semiconductor analysts. If you guys really want to nerd out on this stuff, Dylan Patel is the guy to go to. DeepSeek actually spent over$1 billion on its compute cluster. The widely reported$6 million number is highly misleading as it includes CapEx and R &D, which might be a part of that Singapore piece. At best, this describes the cost of the final training run only. We're not going to go into too much detail here. It's funny, I read some of the replies and I can see it because I'm Chinese, guys.

2:49Oh, so yeah, basically the Chinese lied again. I read a lot of the replies kind of tongue-in-cheek. but basically what it says - Let's go back a little bit. You're saying they spent a billion dollars just on the training, not to create it all from scratch. Yeah. Just a billion dollars training the model. And you know what happened, right? You know what they trained off of, right? Chat GPT. Yeah. They trained off of OpenAI's model. And so there are some innovations that they came up with here. And there's a guy that founded Grok, and I listened to this podcast. He's the CEO of Grok, G-R-O-Q, not G-R-O-K.

3:23Oh, not that Elon Musk. But it's still an AI company. So he worked on TensorFlow and he worked at Google, right? He's like, look, man, at the end of the day, open source always wins. You look at Linux and things like that, open source will win. And so what it means now is that it's not really the frontier models you should be looking at, the LLMs. People were making fun of, oh, like rappers, right? You know, you owe GPT rappers or whatever. What this implies for marketers now is that it does come back to what kind of apps are you going to build? What kind of agents are you going to build that are actually fully autonomous, right?

3:55It's not based on, you know, the latest LLM anymore, right? And so he thinks, he's been in this space for a long time. He's like, look, man, I think the competition, like the Frontier LLMs, those things, like they're going to get commoditized. It's what apps are you going to build? So I think that affects us as business people and marketers. I would say around six months ago, I was on a panel and... You do panels? Uh-huh. I hate doing panels. Yeah, it was virtual panel. Oh, okay, that's fine. So it was easy. And one of the people on the panels was a venture capitalist. I forgot which fund, but it was a massive fund.

4:30And they were talking about AI and how it's disrupting everything. And her tone or her pitch or what she kept saying throughout the whole panel was, China's kicking our butt in AI. You haven't even seen it yet. And she kept saying that. And I had no clue what she was talking about. Did you believe it? I believe that China was doing some crazy stuff in a good way, right? In which they're really building some cool tech. But I never saw anything from China. I don't speak Mandarin. I've never been to China. So I was just like, all right, I believe that's such a big company that's investing so much in tech.

5:08Why wouldn't they be doing something? But they're just like, you haven't even seen what they're doing. She's just like, a lot of what they're doing is better than what we have in the US. I have no way to agree with her or disagree with her because I'm blind, right? I haven't seen anything that she's talking about. I'm assuming this is part of the stuff or some of the things that she's talking about. She's just seen quite a bit more. And I think you're going to start seeing more competition, not just from China, but a lot of other countries are going to continually develop more and more when it comes to AI.

5:38But I agree with you. And if you look at Nvidia stock it tanked, a lot of people believed they created DeepSeek for$6 million. The whole company for$6 million, just to clarify, not just the training of this model. And people are saying the training costs much more. People are assuming they spent$6 million, including the hardware, structuring the company, everything, hiring the employees, only 6 million bucks, which most people know that you can't do a lot of this, these kind of things for$6 million. Right. Um, and I think a lot of that caused Nvidia to also crash because I would get a call from my dad.

6:18It's like, Oh, did you see someone copied open AI for$6 million? Yeah. That headline cost$600 billion in market cap. His net worth went down$20 billion that day. Jensen. Yes. Yeah. But he doesn't care. Like here's the thing. I'm pretty sure everyone cares when you lose$20 billion in a day. I don't have $20 billion? I think he knows it'll be fine. Because the thing is, what I've learned from all this, just reading a lot this week, is that you've heard of Jevons Paradox, right? No. Okay. So Jevons Paradox is where once the cost of something comes down, it actually gets used a lot more. So electricity back in the day, right?

6:54Or like LED lights, for example. Back in the day, everyone's using candles and stuff. Then it became light bulbs, but those were inefficient. And then LED lights. So the thing is, people are like, oh my God, NVIDIA is screwed, right? It's not true. Actually, we're going to still need more chips because the cost is coming down so much. And people like you and me, let's say we're starting from scratch, we're going to be able to build a lot more. It's not NVIDIA screwed. Have you looked at their financials and their quarterly earnings? Well, what do you mean it's not about them being screwed? Because other people, the headlines are people think they're screwed, right?

7:21Or let me rephrase. It's not them being screwed from the concept that there's not going to be more usage. Look at their profit margins on NVIDIA. For their revenue to profit, it's unheard of. It's one of the highest. it's let me actually just pull up their stock symbol and video as you pull it up stock okay check this out so when you look at the last quarter they did 35 billion in revenue and 22 billion in EBITDA right like just to put that in perspective at that scale they're doing 62 percent profit to the bottom line you know assuming they don't have debt payments but even if you just look at like net income, they're still at 19 billion on 35 billion in revenue.

8:08It's not that people are, you know, I don't think most people are concerned that, oh, AA usage isn't going to go up. I think most people who are logical see that AA usage is going to go up because it's going to be integrated in a lot of parts of the world. But for NVIDIA specifically, I don't see that organization having 60 plus percent margins on their company in the long run. You're going to have competition, costs are going to go down, and people may not need as many chips to actually complete the task as things get more efficient. Yes, they'll still need chips, but as time goes on, there's going to be more competition and pricing is going to go down just like everything else.

8:48I think it's nuanced. I think we saw the drop because people panic because it's like, oh my god, it's over, right? And so I will agree that the long-term competition's going to happen. When people see profit margins like that, there's going to be more profit. Yeah, it will come down. The question is, I think they can hold for a little longer because they're still pretty far ahead right now. But I think, again, people look at that. It breeds competition. People want to make more money too, right? So it will happen. Here's the final thing I'll say around this. And I'll just add on to the Chinese piece because I've talked to a handful of Chinese people.

9:19My barber, he has a bunch of people that live in China, right? And he's like, it's not even close right now. We're talking about competition. Actually, my mom said this. She said this. She's like, sometimes freedom is really good. She loves being in America, right? But she's like, sometimes freedom isn't. Sometimes it's better to just have someone dictate to you. And I asked my barber about this. I was like, so what do you think about that? Do you think that's a good thing? He's like, largely families in China, they're okay with that because their lives are better. Because the way their kids are educated right now, five or six years old, they know STEM stuff.

9:49They know how to code. and they're working really, really hard, right? And so it's forced into the culture. And if you look at China, you haven't been to Japan before, right? Have you been to Japan? Okay, so Japan's super clean, right? Yes. It's pretty close. And affordable. It's pretty close to, yeah, and very affordable. It's pretty close to clean, as clean as Japan and pretty affordable. And don't get me wrong, I still prefer to live in the US, but I think from the way they're doing a lot of these things, look at it this way. The final thing I'll say is this. semi-analysis also mentions that cost could fall by another 5x by the end of the year.

10:24Basically, the key innovation they came up with is called multi-head Latin attention, so MLA, which significantly reduces inference costs by cutting KV, I don't know what that is, KV cash usage by 93.3%. The report suggests that any improvements DeepSeek makes will likely be adopted by Western AI labs almost immediately. So they did come up with something pretty good, and I love this competition because it makes things cheaper for us. Yes. And then I like how it's one 45th the cost. Yeah. But going back to China, do you, do you, did you watch the TikTok US president or CEO, whatever his title is, testified to Congress and they're questioning him about TikTok in the US for children versus TikTok in China?

11:04No. And he's just like, let's say it was a senator asking. He's like, Senator, no, it's not the same. In China, we show them educational material that can help them learn and all this comes up. In the US, it's pure junk and entertainment. And I'm paraphrasing. He did not say it's pure junk and entertainment, but he pretty much implied it's junk and entertainment. And people might think, oh my God, they're doing that on purpose. I don't think they're doing it on purpose. I think what happens is in China, they force it that way, right? Yeah, it's not his choice. But in America, when you have the freedom, this is what you get when you have full freedom.

11:38You tend to want to consume a ton of junk. And I'm just saying this is human nature. It's the algorithms. If the algorithms show that kids love all the educational material, the algorithms would only show educational material because it would cause more usage and hence make them more money. That's not the case though. Little kids don't want educational material shown on TikTok. And so you as a parent, sometimes you have to figure out the content you want your kids to see, right? And so they're just moderating that on like a governmental level. Yeah. The solution I have is you just on Show Kids TikTok or Instagram.

12:09They don't use TikTok? Do my what? Do your kids use your TikTok? No. No, neither. But every once in a while at nighttime, they will ask me, hey, can you show me some Instagram videos? Their version of an Instagram video is either a dog singing Apathe. I think it's called Apathe. Is that some Indian thing? No, the Bruno Mars song with that rose girl. I don't know. Or APT or something like that. I'm not hip enough. Yeah, me neither. It's just a popular song that everyone was singing probably three, four months ago. Or they'll ask me to see things like, let's say if it's during Christmas, they want to see how Christmas lights look like for houses that just go all out.

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15:03But going back to DeepSeek, everyone's talking about DeepSeek versus ChatGPT. And I don't really care who is the winner or loser because at the end of the day, all this competition - We're promiscuous. We're LLM promiscuous. At the end of the day, all this is going to do is cause all of them to get better and compete, which benefits us, the end consumer. Hence, governments like the US government doesn't like monopolies, right? Because it just benefits the consumer to have all these corporations competing against each other. I'm not saying or I'm not agreeing or disagreeing that saying, hey, if a US person uses DeepSeek, that's really bad for him because it's Chinese controlled.

15:43You know, I'm not trying to get into politics or anything like that. Just more so the overall technology. If they develop crazy cool technology, people here are going to try to copy, learn from, etc. But I think the bigger thing that people aren't really paying attention to that you and I see as marketers is AI and a lot of these platforms are changing consumer behavior. Like when you go to search years ago, it used to be, and when I say years ago, I'm only talking about around two years ago, people would just type something in and you would have to sift through links. Now we're getting used to conversations and typing in conversations and having these full-on conversations with the machine and asking a question, giving us an output and us telling the machine, how we want it modified.

16:28And a lot of people, if you actually look, because we've done studies where we track what people are doing with their authorization, of course, and you're seeing people talk to these LLMs with manners. Like, hey, can you please do this? I still do please, because when they take over, I don't want to be enslaved. And what I think is going to happen is all this stuff that's happening right now, whether there's Deepsea, ChatGPT, et cetera. It's training us to talk to machines and robots like they're humans and interact with them on a deeper and eventually more emotional level, even though we're not doing that right now.

17:07But it's taking us down that path and I don't think most people are seeing it. Yeah, eventually it'll be like the sci-fi movies where you're talking to a robot full on and it responds, I mean, even the Google Dev Studio thing, when you're talking to it, it responds real time. There's very little latency. And we've talked about Hume.ai before. I think it's going to get pretty nuts. The one thing that I think is practical for everyone that we can move to the next topic is how you can actually use DeepSeq without worrying about the CCP. So what I mean by that is, I don't know if you know this, Neil, but when you want something to be deleted and it's on a Chinese server, it doesn't actually get deleted.

17:41It just says delete next to it. So if the government wants to pull that, if the CCP wants to pull that, they can pull it. And so the way around this is if you use Perplexity and you use R1 in there, DeepSeq is, R1 is like their reasoning model. That will get around it. Or you can run it locally, which is what we're talking about. Now I'm just like, how many of these computers can we buy and just run this all locally? So that's how you can do it without having to worry about your data being stolen or anything like that. I don't personally worry about that too much. But when I use DeepSeek, I don't push in sensitive information or anything I would want leaked.

18:14But I assume that when you ask it anything, it's pretty much there and it's stored forever. Yeah, it's stored forever. I mean, it just says delete next to it. It's just the text delete. It's not deleted. Yeah. Okay. So we kind of talked about, I was texting you last night about this. So I was at some Chinese New Year founders dinner thing yesterday. And I want to talk about what founders are really saying about AI behind the scenes. So we know a mutual friend, he has like a AI working group at his company and they're strictly just focused on AI. And, you know, let's say they spend like, they save$200 ,000 on cost to recoup that cost.

18:54Maybe they're spending$10 ,000 to recoup that cost using AI, right? To regain the efficiencies. That's one example. Do you want to elaborate on our mutual friend? Yeah. So I think what we're seeing founders do, whether they want to admit it or not, a lot of them are creating these AI committees. And some of these AI committees are responsible for figuring out efficiencies in an organization that have the mandate, whether that's right or wrong, to eliminate jobs and automate it through AI. And the big thing that I think we'll start seeing isn't companies just improve in efficiency. Yes, I think there's a lot of money to be made there.

19:37but to go one level deeper where I really see things getting ridiculous and it could be looked as a good way or a bad way is I know a lot of companies right now who have figured out how to eliminate a lot of jobs in certain industries and maintain the same quality of work and they're just going on an M &A spree and they're buying up corporations that haven't implemented this technology. So if someone's doing, call it 4 million in revenue, and they're doing 800 grand in profit, a lot of these guys are like, okay, you want five, six times your company, here you go. They even give it to them, you know, payment plan, maybe over a year or two years.

20:20And instantly, they're rolling out AI, it may take them six months to a year to fully get it up. And their margins have just went from 20 % to, hey, we're now doing 2 million in profit on$4 million. And you now have a company that's just worth so much more because you're running at 50 % margins instead of 20%. But yet you bought that company at a 20 % margin. And to give you guys the math on that, if a company is doing 800 grand in profit and And you end up buying them for six times. What does that end up being? $4.8 million? Now they're buying, you know, they end up getting the profit to$2 million.

21:06And they're paid pretty much less than 3x for that business. Yep. It's an arbitrage. And, you know, as much as I think this is the thing, right? This is business. And it's tough. Like there's human beings involved here. But if you look at the administration, what they're offering the government employees, eight months severance. pretty good, right? I'm not saying everyone should offer eight months. I think eight months is very generous. If you can offer that, go for it. But I think this will be a more popular play more and more as long as people can get over the fact that, hey, tough decisions are going to have to be made.

21:38But here's a kicker. If you go to a traditional bank, assuming you're established business with profit, a bank will give you two to three times, three and a half times profit on a deal that you're buying and they'll amortize it over five, six, seven years, 10 years. Usually I've seen five, seven, and you can do 10 years as well. So when you think about a 10 year payment, you're buying a business for three X, the bank's telling you to pay it back and let's call it 10 years, even with interest, you know, it's not a hard arbitrage, massive arbitrage. Here's the thing. So I was talking to a guy yesterday.

22:13And so let's say they're doing 30, 40 million, 40, 30, 40 million a year in annual recurring revenue or ARR. And I'm like, so how's business going right now? He's like, it's pretty steady. I'm like, but he's like, but he looks at me, he's like, so what are you doing with AI right now? Right. And then I'm like, what are you doing with AI? And he's like, oh, I'm like all in on deep seek right now. And then what about, have you heard of O1 operators? I was like, of course I have. Right. So he's using operators, agents. And then I was like, so what's your, what's been your team's reaction to it? And they're like, oh, it's so dumb right now.

22:40It's so dumb right now. And then literally we both blurted out at the same time. I'm like, that is missing the point. The point is it's as dumb as it'll ever be right now. And if you don't see what's coming, there's only two options. You get better and you get paid more, or you don't get better and you get replaced by the first person. And I've been kind of sounding the alarm for quite a while to my team now when I do these. And it's like, there's a bit of teaching in there. There's a bit of sounding the alarm and people still don't get it yet. And I don't think people want to get it. And so then we're looking at each other.

23:09And I was like, so he's like, dude, so what do you think is going to happen to business in the next couple of years? and then I was like, you know, well, Chris Saka said we're kind of all F'd, right? So okay, that conversation happened and I sat next to a guy who runs a quant fund, like an AI quant fund. I was like, how does that work? He's like, he just focuses on AI. Really smart guy, like super sharp. And I was like, so where do you think things are going? He's like, all I know is right now is the time to make money because we have no idea that the world's going to be completely unrecognizable in the next decade or so, right?