February 4, 2025

Real talk

Hi there, 

Quick reminder: we need your input here on how often you want this newsletter. It takes < 60 seconds. 

Thanks to the many who have submitted feedback already. 

Now, let’s dig into how big tech is reacting to DeepSeek’s model efficiency gains.

AI infra costs come under scrutiny

To catch you up: DeepSeek says it trained its highly performant open models with limited computing power. 

That efficiency raised questions — and investor panic last week — about the scale of US companies’ AI investments. 

Increased spend on AI infrastructure has driven big tech’s combined capex past $50B in recent quarters.

Staying the course

We looked at recent earnings calls on CB Insights to get the lay of the land.

On calls last week, both Microsoft and Meta acknowledged DeepSeek’s innovations — and indicated they will maintain their planned spend.

Zuck, for example, framed Meta’s capex spend as a “strategic advantage” as the company scales its AI usage across its products.

CBI Earnings Insights summarized:

Source: Meta Q4 FY 2024 Earnings Call on CB Insights

As AI infrastructure and operational costs decline (aka AI becomes cheaper), major tech companies expect they will benefit from the expanding market. 

For cloud providers like Microsoft, that means capturing growing demand through more competitively priced AI services. 

Microsoft CEO Satya Nadella emphasized this potential on the company’s recent call: 

“We ourselves have been seeing significant efficiency gains in both training and inference…as AI becomes more efficient and accessible, we will see exponentially more demand.”

Bottom line: dropping training costs will further drive down the cost of using these models = more AI everywhere. 

ROI in the spotlight

For the big 3 cloud providers (AWS, Google Cloud, and Microsoft Azure), the genAI rush has sparked fresh growth. 

Microsoft reported revenue growth of 33% in its Azure and cloud services in Q1 FY 2025 (calendar Q3'24), though growth slowed to 31% in its latest quarter (calendar Q4'24). AI sales contributed 13 points to growth in the quarter.

Still, the key question for investors is: when will all of the ROI come through? Microsoft shares dipped 5% after its more muted cloud growth.

Get our full breakdown of the DeepSeek drama here.

TLDR — Tech loves drama, right?

Source: LinkedIn

I love you.

Anand

@asanwal 

Co-Founder & Exec Chair

P.S. Chart the AI landscape’s course from 2024 to 2025 in our live briefing on February 11. Register here.

Get started with CB Insights

CB Insights' emerging technology insights platform provides all the

analysis and data from this newsletter. Our data is the easiest way to discover and respond to emerging tech. 

Was this email forwarded to you? Sign up here