DeepSeek, No Moat, and the Future of AI Investments

The AI industry moves fast. New models pop up, companies spend billions, and investors chase the next big thing. But one debate keeps resurfacing: Does AI really have a moat?

A “moat” in business means a company has something that keeps competitors from catching up—like Apple’s ecosystem or Google’s search dominance. But when it comes to AI, things get complicated.

What Does “No Moat” Mean in AI?

AI companies love to talk about their competitive advantage, but the truth is, it’s getting harder to build a lasting edge. Big models are expensive, but they’re also becoming easier to replicate. What used to be a billion-dollar advantage in compute power and data is now something smaller players are figuring out on their own.

That’s where DeepSeek comes in. This Chinese AI startup isn’t playing by the old rules. Instead of locking down their models and charging premium prices, they’re going all-in on open source—and it’s making people rethink how AI companies should operate.

DeepSeek’s Open-Source Gamble

DeepSeek isn’t trying to hide their tech. They released their R1 model for free, giving developers worldwide access to cutting-edge AI without the usual paywalls. This move is a direct challenge to companies like OpenAI and Google DeepMind, which rely on closed models and high licensing fees.

By making AI more accessible, DeepSeek is reshaping the industry. Instead of a few big companies controlling everything, smaller players can now compete, innovate, and experiment without needing billions in funding.

Why Investors Are Worried

The rise of open-source AI makes it harder to justify massive investments in closed models. If anyone can take DeepSeek’s model and build on it, where’s the long-term value?

Investors see two major risks:

• AI becomes a commodity. If advanced models are free, companies like OpenAI may struggle to charge a premium. The industry could shift from selling models to selling services, integrations, and support—which isn’t as profitable.
• Market saturation. More open-source models mean more competitors. This drives prices down and makes it harder for companies to stand out.

For investors who backed AI startups expecting massive returns, DeepSeek’s approach is a potential red flag. If the industry keeps moving towards free, open-source AI, it changes the entire playbook.

Why Moats Still Matter

Not everyone thinks DeepSeek is the beginning of the end for proprietary AI. Even if the base models are open-source, companies can still build unique advantages in other ways:

• Data: Proprietary datasets are still valuable. A free model is only as good as the data used to train it.
• Customization & Services: AI companies can offer tailored models for specific industries, making them more useful than generic open-source versions.
• Ecosystems & Integration: The biggest tech companies don’t just sell AI—they integrate it into cloud services, enterprise tools, and consumer applications.

DeepSeek might be lowering the barriers, but it doesn’t make AI development worthless. It just shifts the value away from raw models and towards what companies build on top of them.

The Future of AI Investments

DeepSeek’s strategy is a wake-up call for investors. Instead of looking for the next big proprietary model, they might start paying more attention to:

• AI companies that focus on accessibility and integration. Open-source models level the playing field, so the companies that succeed will be the ones that offer the best user experience, customization, and support.
• Startups that use AI in unique ways. Instead of investing in AI model creators, the real opportunity could be in companies that apply AI to healthcare, finance, and other industries in ways that proprietary models can’t.
• Hybrid models. Some AI companies might go for a mix—offering open-source models while keeping premium features and datasets locked behind paywalls.

Conclusion

DeepSeek is proving that AI doesn’t have to be locked down behind billion-dollar companies. By open-sourcing their model, they’re pushing the industry toward a more collaborative, accessible future.

For investors, this means rethinking how they evaluate AI companies. The biggest moats may no longer be about who has the most powerful model—but about who can make AI useful, scalable, and profitable in the real world.

As the AI space keeps evolving, one thing is clear: adaptability wins. The companies that succeed won’t just be the ones with the biggest models—they’ll be the ones that know how to use them best.