Special Edition: Meta vs China AI

Ahoy Metamates! 🚢 🏴‍☠️

BIG TLDR for those of you freaking out about DeepSeek. DeepSeek just handed Meta the entire AI market. Congratu-f*cking-lations, fellow shareholders. Skip to the 3rd section if you’re unable to contain yourself.

But first, a story on how AI became a sudden emergency:

Here’s a scary thought: when the FBI was looking for a Head of AI last year, they interviewed my co-founder. Now, David is wicked smart. But I think he’d be the first person to tell you we submitted his resume there at 3 AM after a dare with some DEFCON friendz and a respectable amount of scotch. He goes to the interview and they tell him the job for Head of AI of the FBI has actually nothing to do with AI but it’s all about writing policies that define what kinds of AI should the FBI take seriously.

That’s all to say: we’re f*cked.

I try to be polite about these things but, we’re f*cked.

Being on the cutting edge of AI is not just a feel good pride thing for us tech folk, it’s a national security capability for the US both in economic and military warfare. Non- linear technological progress is a highly volatile time where the balance of power in the world can shift rapidly, and possibly irreversibly. In this case, it can shift in Meta’s favor.

While most people were highly obsessed with Mark Z staring at Lauren Sanchez’ cleavage, I found it pretty telling that he was in the front row at the inauguration to begin with. In case I need to be explicit: we’re basically in a cold war with China and Meta + Palantir + Whatever it is that Elon does = Bell Labs.

Hold on to your britches because most of your favorite logos will struggle on the stock market this year.

First-

Some background from Marc Andreessen (a key Meta board member):

When this video came out, the immediate public conclusion was that Marc is red pilled, likely pumping T and probably spending a lot of time on 4chan. However what I hear is:

• The government is using last ditch effort tactics of direct interference and comparing that to “physics in the Cold War”

• Logical conclusion is they consider AI to be of critical offensive capability

• This level of desperation means we’re in deep trouble

Relevant to us because Marc is on Meta’s board + Meta has made AI a priority and has been blocked at every turn by the government on infra + Meta vs China is the most relevant tech battle of our times, other than semiconductors.

Next, some background on Meta AI efforts

Meta has the best strategy on AI in the US - commoditize their models to ensure they get wide adoption and eventually drive down costs through efficiency of scale. It was also working much better than most people realized (up until last week).

• ChatGPT, despite its popularity, only had 5% of Fortune 500 as clients

• Llama enterprise has real heavy hitter clients like Block, Spotify, LinkedIn, IBM etc.

  Best explanation I’ve seen of why is this video ( go to timestamp 1:05:46) but TLDR: faster adoption leads to better lock-in with ads.

On getting PWNED by China - Meta wins, actually

With all this said - The degree to which we’re f*cked by China is currently NOT as bad as people are tweeting about ( I’d say we’re medium f*cked). Bares pointing out, the single person who saw Chinese AI coming around the corner is Mark Zuckerberg, who from the beginning made the risky bet that AI will commoditize. Meta’s strategy with Llama is pretty genius.

TLDR on what the actual deal is with Deep Seek - click to read whole thread. It’s currently the only non-bullsh*t tech boi take on this I’ve seen:

But basically - here goes the controversial take:

• DeepSeek made 2 major cost cutting innovations

• This makes them much more efficient at scale

• Export restrictions are still in place (China’s ability to get more NVdIA H100s is limited)

• Meta is sitting on 600,000 H100s

• Thanks, China for making AI more efficient

• Meta will crush the market now

• OK thanks #bye

Provided that Brian Nowak at Morgan Stanley doesn’t try to sink the stock with his lack of understanding about technology AGAIN, we should have a linear path to Meta becoming one of the most valuable businesses ever built.

Understanding Chinese Tech

Most people have a negative view of Chinese tech as “inferior” - and that’s a mistake. Beyond the 996 work culture and the relentless attempt to steal patented tech, there’s a drive that’s nearly forgotten in Silicon Valley: the need to prove you’re best.

That’s right. While you’re TC or GTFO-ing on Blind, your salary alone is likely more than what DeepSeek cost to build in its entirety. Competing against a hungry person is a dangerous gambit. And most of us tend to forget where we came from when the bank account hits 7 figures.

Not to be harsh but y’all got murdered by simply being lazy.

OK, getting off my soap box - here’s the data:

China has been aggressively and directly funding AI work for 20+ years

Among the top 155 AI projects:

• 54 (35 percent) went to the health sector,

• 39 were government and civil society projects,

• and another 38 were allocated to communication technologies

On average, the 30 health-sector projects cost $11 million per project.(RAND data). I’m not even going to pull data to compare that with how much funding US AI startups get because it would be comical.

And while we’re trying to build widgets to impress VCs here in the US, China’s AI tech for the last decade has been a tool for diplomacy wins:

Most of it supported some form of dictatorial / oppressive political regime. Maybe if you’re feeling extracurricular today, Google why Congress investigated US VC Firms Sequoia and GGV investing in Chinese AI that was used in active combat zones in some cases.

Now, About Military Capabilities

The other weird thing about Communism is that priorities are communicated clearly - unlike US politics, what is said is actually meant.

Here are China’s explicit tech priorities:

Now, it’s not a secret to anyone that the People’s Liberation Army is using AI in a myriad of ways, including offensively to wage infowar on adversaries (that’s us).

But it may come as a surprise that they feel this is a necessary defence tactic:

And being that this is existential, they didn’t waste time operationalizing it:

I know this is a lot of words- so let’s do a palate cleanser picture.

TLDR: AI is an offensive military capability and developing DeepSeek was existential because of fear US based models are biased and can influence society.

What’s Next

• Earnings call in two days!

• Meta might buy TikTok ( but probably not) and for some reason Perplexity is bidding on it? Make it make sense

• I’ll be back with analyst reports next week

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