View the San Francisco for Sunday, February 2, 2025
The artificial-intelligence industry — much of which is concentrated in San Francisco and the Bay Area — was hit by a figurative earthquake last month.The earthquake came in the form of the second of a pair of AI models released over the course of a month, along with an app that quickly jumped to the top of the charts.
What made the models so jolting to the industry was that despite being technologically competitive with models developed by industry leaders such as San Francisco-based OpenAI and Anthropic, they were created by a relatively obscure Chinese company called DeepSeek, reportedly for a fraction of the cost and in spite of export restrictions that limited its access to the latest high-powered AI chips.DeepSeek’s move was “a shot across the bow” of companies such as OpenAI and Anthropic, said Chris Nicholson, a partner with San Francisco’s Page One Ventures, which invests in AI model and application developers. The aftershock of the release of DeepSeek’s models hit the stock market Monday. Shares of Nvidia, which has seen its sales skyrocket asShares of Constellation Energy — which Microsoft convinced to restart one of the nuclear reactors at Three Mile Island toit’s seeing in its data centers from AI — fell nearly 21% Monday. Digital Realty, which owns and leases out data-center facilities, which have seen hot demand with the rise of AI, saw its shares drop 9% that day. Microsoft has invested billions of dollars in OpenAI, while Google has invested heavily in Anthropic and in developing its own AI models — and both also saw their stock prices drop Monday. Many of the companies’ shares bounced back later in the week, but most only modestly. The stock market has been on a bull run since the fall of 2022, basically around the same time OpenAI released ChatGPT, noted Steve Sosnick, chief strategist at Interactive Brokers, an online stock brokerage. Much of the market gains companies have posted since then have been driven by the excitement about AI, he said. But that excitement and the run-up in share prices was built on the assumption that AI developers were going to need more and more computing power running in larger and larger numbers of data centers and sucking up more and more power, Sosnick said.The OpenAI logo is seen displayed on a cell phone with an image on a computer monitor generated by ChatGPT's Dall-E text-to-image model, Friday, Dec. 8, 2023, in Boston. Public-market investors who have acquiesced to the huge amounts of money the Big Tech companies are investing in data centers and chips for AI are starting to question that spending, Sosnick said. DeepSeek’s move also raises concerns about whether those companies or even the leading AI-model developers to date will actually be the ones who dominate the industry in the future, he said. DeepSeek’s apparent ability to develop a competitive AI model at a fraction of the cost of those of companies like OpenAI and Anthropic could open the door for lots more companies with far less funding than the giants to compete, he said.That put DeepSeek on the radar screen of AI experts here in the U.S., who quickly recognized it as a leading developer of the technology in China., which offered comparable performance to OpenAI’s GPT 4o and Anthropic’s Claude 3.5 Sonnet. That’s what helped to set off the earthquake that rocked the public markets Monday., a so-called reasoning model. Built on top of V3, it operates similarly to OpenAI’s o3 model, taking time andBy Monday, DeepSeek’s app, which offers a chatbot similar to ChatGPT that’s powered by the company’s V3 model,Reuven Cohen, a technology consultant who has been using DeepSeek-V3 since shortly after it was released last month, at home in Oakville, Ontario, Canada on Jan. 15, 2025.And the expectation has been that the price tag will only go up with the next generation of models, likely into the billions of dollars. Each training run of the model OpenAI has in developmentBut the other shock for many investors and analysts was that DeepSeek was able to develop its models with at best limited access to the latest Nvidia chips. To try to hinder Chinese AI development, the United States under former President Joe Biden put in place export restrictions on Nvidia’s most advanced AI chips. The restrictions on chip imports forced DeepSeek to take steps to be more efficient in training and running its models, in effect to do more with less, according to AI experts. Although DeepSeek did invent some new techniques, many of the optimization steps it took were already known to AI researchers in the United States, said James Landay, a professor of computer science at Stanford and co-director of its Human-centered Artificial Intelligence institute.Among AI experts and venture investors who focus on the space, the reaction to DeepSeek’s models has been a little more subdued than that of Wall Street investors. Many argued that DeepSeek likely spent significantly more than $5.6 million to develop its technology. That figure only accounts for the final training run of V3, said Ben Thopmson, a technology analyst who writes the Stratechery blog. It doesn’t account for previous training runs, the cost of developing prior models or the cost of the hardware. “It’s pretty apparent to me that this model didn’t cost $6 million to build, all in,” said Kevin Novak, founder of Rackhouse Venture Capital,So, the idea that AI developers could develop state-of-the-art models at a small fraction of the billions of dollars that OpenAI, Anthropic or xAI are spending may not really be the case, experts such as Novak said. And it’s likely that even with DeepSeek’s achievement, costs are going to go up anyway. There has been to date a direct correlation between the size of models and the computing power that goes into creating them on the one hand, and on the other, their intelligence, their ability to answer questions accurately, AI experts said.“I believe the world’s appetite for intelligence far outstrips the supply,” he said. Although DeepSeek is offering its model for free and charges developers far less than OpenAI or Anthropic to tap into the version of its model that it hosts, many companies outside China might be reluctant to work with it. DeepSeek’s servers are in China and are thus subject to laws that could force it to turn over personal or corporate data to the Chinese government. But there’s also concern that there could be code hidden within DeepSeek’s model that could compromise data even when the model is hosted locally in the U.S. While the model is open weight, understanding how exactly AI models work and what they’ll do in particular circumstances is all but impossible, Nicholson said.And, Novak said, the costs of running and even training — at least measured in terms of the intelligence that’s coming out of training — had already been coming down. So, it’s unclear just how much DeepSeek’s model will affect what was already happening in the market. Still, Novak and others said they think DeepSeek’s moves will affect the industry. Especially because it released its models openly and discussed its research, its efficiency techniques will likely be widely adopted by other developers, they said. And the fact that it was able to build a competitive model with fewer resources will add to questions that were already being raised about whether the strategy of building ever bigger models with ever more computing power is the right way to go, Landay said. It has become increasingly clear that the gains developers are getting from training on more data has decreased over time, he said. Much of the recent advances in models have come from incorporating techniques such as chain of thought or so-called “mixture of experts,” a technique in which queries are farmed out to submodels with specific areas of expertise, Landay said. DeepSeek’s ability to build a model efficiently offers hope to other startups, said Sean Foote, a venture capitalist and a professional faculty member at UC Berkeley’s Haas School of Business. Even with its other development costs taken into account, it still likely spent significantly less developing V3 and R1 than its American rivals, AI experts say. To date, Foote hasn’t invested in any companies developing cutting-edge AI models because the capital those companies require has been way beyond what he can provide, he said. But DeepSeek’s move offers the possibility that other startups might be able to build their own models for far less money. “Maybe all the assumptions about models are wrong, and it doesn’t require that” kind of capital, he said.Proceeds from the West Coast Makers pop-up on Treasure Island will be donated to the Black LA Relief and Recovery Fund to support Black communities displaced by the Los Angeles wildfires. Gold Bar Pop-UpPublic transit systems such as BART have suffered from the aftereffects of the COVID-19 pandemic, as the rise of remote work has meant fewer employees commuting to job sites.in the wake of the COVID-19 pandemic as many companies embraced remote work and employees no longer commuted downtown with the same frequency. The resulting effects on The City’s downtown economy have been significant, with numerous retail businesses closing shop. Recently, an increasing number of prominent companies have updated policies to require employees to be in the office more, including Salesforce, Amazon and J.P. Morgan Chase. President Donald Trump also ordered federal employees to be in offices five days per week, and San Francisco Mayor Daniel Lurie has askedNicholas Bloom is the William Eberle Professor of Economics at Stanford University, and he has extensively studied remote-work trends. He offered the following thoughts via an email exchange with The Examiner. The conversation has been lightly edited for clarity. has a very heavy tech and finance mix of businesses, and they have had some of the highest levels of hybrid and remote working. These are industries with a lot of computer-based work, which is easier to do from home. In addition, was hit by the tech slowdown in hiring. So this was How much of an effect do you think there will be on San Francisco from recent more stringent in-office policy announcements by major public and private employers? Do you expect many other San Francisco employers to follow suit? To some extent, yes, although national trends on office use and city-center visits are pretty flat since mid-2023. It does seem like office attendance is veryDo you expect that San Francisco to be a standout regarding the relatively low number of people working out of offices? It is not really a standout. Seattle and San Jose look similar. San Francisco’s heavy tech and finance presence made it the boom town of the 2000s up to the pandemic, and recently have caused slower growth. But in the long run, San Francisco has a very bright future. The fundamentals are great, with amazing weather, a highly educated population and several world-class universities.— which tracks company approaches to and provides tools for managing remote work— has been for more companies to adopt structured hybrid-work regimes. Do you have a sense for how much the hybrid approach will continue to affect commercial real estate and urban downtowns? Hybrid is actually fine for office space as this typically means coming to the office three days a week, usually Tuesday to Thursday. As a result, most big companies still need office space. What has been harder is fully remote, which a number of smaller companies have adopted, as well as larger firms, for their back-office staff. But I think fully remote will not expand going forwards, so the worst has passed for the office market. You have predicted that the advent of new work-from-home technologies — such as better video screens, virtual reality and holograms — will fuel a continued rise in remote work. Do you still believe that, and will that trend continue in San Francisco? Yes absolutely. You cannot stop technology. Over the next few years better software, hardware and technologies like portals, virtual reality and holograms will make it easier to work remotely. If you look back 10 years to 2015, Zoom was in its infancy and cloud was still in its early days. These are now both core remote technologies. Similar huge changes will likely happen in the next 10 years. You pointed out in a recent presentation that Lazard CEO Peter Orszag and U.K. Prime Minister Keir Starmer were touting the benefits of flexible policies allowing people to work from home. Are there many corporate and government leaders who share such opinions? Good question, and it seems like a sensitive position to take right now, so the heads of big companies generally keep quiet. A few outliers speak out in favor or against work from home, but mostly they are quiet. I think no leader wants to end up in a media storm with employees, investors or politicians. It has become just so sensitive that most CEOs refuse to publicly comment on working from home. Some people say that experience is showing that employees are more productive and quit less when they are working in offices. Do you agree, and is there recent evidence to support that contention or the contrary?when they are forced into the office five days a week. Anyone claiming anything else is not using data. Nobody is happy being forced to do something — we all enjoy freedom and choice. On productivity, the data is more nuanced. Generally, the research supports the idea that once you come into the office three days a week, you get about enough mentoring, innovation and connections to be fully productive. The other two days save on commuting and provide quieter time. But this depends a lot on individual roles and how well-managed remote work is.Given that many employees value flexibility to work from home more than some portion of their pay, and unemployment is relatively low, are employers in San Francisco currently in a position to impose return-to-office mandates? Anyone can impose a return-to-office mandate anytime. The question is how many people quit. Typical estimates are that going from three days in the office to five days probably leads to about 10% of employees quitting. Generally, these will be higher performers as they have the strongest outside options. Whether an individual business can accept that level of turnover depends of high performers on their current status. For firms like Amazon looking to downsize, that is good news, but for firms looking to grow, this is more challenging. Are there other issues you think San Franciscans should consider when grappling with the profound effects that the rise of remote work has had on downtown’s economy, ranging from office property ownership to retail, hotel bookings and tax receipts? The obvious one is crime. Talking to business, street-level crime is a huge deterrent. Indeed, we just had the American Economic Association annual meetings in San Francisco this month with 6,000 people coming in, and many were shocked at the drugs and homelessness in the Sixth and Mission street area. That is something that is very offputting and is costing The City likely tens of millions of dollars a year in lost revenue.District Attorney Brooke Jenkins: “Although there is still more work to be done, the improving crime rates show that we’re moving in the right direction.” Surrounded by immigrant advocates on the steps of City Hall on Tuesday, San Francisco District Attorney Brooke Jenkins delivered a clear message to those in whom President Donald Trump has instilled fear. “My office is doing nothing in coordination with any federal immigration enforcement whatsoever,” Jenkins told the crowd, urging them to feel safe reporting crimes to local police.Trump campaigned on a promise to carry out mass deportations and secure the border. As he took office, he enacted a seriesThe City Hall rally was meant to signal The City’s support for immigrants and unwavering commitment to its longstanding sanctuary policy, which prevents local officials from aiding federal law-enforcement officials in carrying out deportations. But divisions over who to deport and how to deport them existed before Trump, and they continue into his new administration. As the public defender’s office tells it, Jenkins’ office frequently files drug charges against individuals in local court, but it also alerts federal prosecutors to those cases. Federal officials then swoop in and take over — a scene that has played out more than 100 times, the office contends. Federal prosecutors, who have no real intention of trying the case, subsequently back defendants into what the public defender describes as “coercive fast-track deals to funnel these individuals into immigration detention and deportation.” “We believe the DA’s office does this because they are losing when they take these cases to trial, and they are trying to get around the sanctuary ordinance to deport these individuals instead,” the Public Defender’s Office told The Examiner in response to a series of questions.San Francisco Public Defender Mano Raju speaking at a press conference in support of San Francisco as a sanctuary city, on the steps of City Hall on Tuesday, Jan. 28, 2025. Jenkins’ office stands firmly by the claim that she made on the steps of City Hall and said it abides by the sanctuary ordinance, doesn’t work with ICE and only becomes aware of a defendant’s immigration status when notified by the Public Defender’s Office. “The Public Defender’s Office is lying and misleading the public by intentionally conflating ICE with normal federal investigations in the prosecution of drug-dealing cases,” a spokesperson for Jenkins told The Examiner. “We have made it very clear that we work with the federal government in the prosecution of drug dealers, who are destroying lives and communities.” The City’s sanctuary ordinance does not protect anyone and everyone from deportation. It lists key exceptions — such as serious or violent felonies — that allow local enforcement to work with federal officials to promptly deport someone. The Public Defender’s Office claimed that the cases in question don’t fall under any of those sanctuary exemptions. Supervisor Matt Dorsey briefly proposed amending the sanctuary ordinance in 2023 to add drug charges to the list of exemptions, but It’s the federal government’s right to enforce the law, Jenkins’ side contends, and it can decide what cases it wants to prosecute. And her office says it hopes the feds do, because it believes local judges aren’t harsh enough on drug dealers. “Federal prosecution provides a critical deterrent to drug dealing because if a person goes to trial in federal court, and they are convicted, they will be sentenced to time in prison,” Jenkins’ office said. “In contrast, in San Francisco state court, the majority of judges do not treat drug dealing as a serious crime despite repeat offenses, and the grave consequences visited upon our communities, and the drug dealers therefore do not fear incarceration, or any significant consequence.” The Public Defender’s Office agrees that the consequences of shifting cases to federal courts are severe. “The district attorney’s ongoing collusion with the federal government to funnel people into immigration detention and deportation is unconscionable, especially at a time when the Trump administration has ramped up immigration arrests, threatened mass deportations, and issued numerous executive orders targeting immigrants,” said Angela Chan, assistant chief attorney at the Public Defender’s Office. The Public Defender’s Office said it believes many of the people arrested for dealing drugs are actually victims of human trafficking who are coerced into dealing under threat of violence. It has used this defense on seven occasions, resulting in two guilty verdicts and four hung juries or mistrials. It had its“That means five out of seven times, the prosecution has not been able to secure a conviction,” the office said. “This demonstrates that if juries are allowed to hear about the horrific experiences our clients in these cases have been through in their lives — the threats they have endured — juries will recognize the reality of labor trafficking. They will consider that putting such victims in cages creates more harm.” Meanwhile, Jenkins and other city leaders said they believe they’ve broadly found success by working closely with their federal counterparts. Since launching the Drug Market Agency Coordination Center — a task force of local, state, and federal law enforcement — in 2023, The City has seen crime drop to its lowest levels in years. “Although there is still more work to be done, the improving crime rates show that we’re moving in the right direction,” Jenkins said in January. “My office will continue to do everything we can to ensure the criminal justice system works in our city and there is accountability and meaningful consequences for criminal behavior.” It’s unclear what impact, if any, Trump’s arrival in the White House will have on federal prosecutors’ approach to drug and immigration enforcement — or local officials’ willingness to work with them. Editor’s note: This story was corrected on Friday, Jan. 31 to reflect that it was Supervisor Matt Dorsey who in 2023 proposed amending the sanctuary city ordinance to include certain drug-related crimes on the list of exceptions. District Attorney Brooke Jenkins requested, and quickly dropped, an exception to the sanctuary ordinance that year to facilitate extradition of two violent crime suspects.Click and hold your mouse button on the page to select the area you wish to save or print. You can click and drag the clipping box to move it or click and drag in the bottom right corner to resize it. When you're happy with your selection, click the checkmark icon next to the clipping area to continue.This is the name that will be displayed next to your photo for comments, blog posts, and more. Choose wisely!Create a password that only you will remember. If you forget it, you'll be able to recover it using your email address.Forgot Password An email message containing instructions on how to reset your password has been sent to the email address listed on your account.
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