Will DeepSeek Eclipse the “AI Capital of the World”?

A “Sputnik moment” by the Chinese chatbot DeepSeek has cast a far-flung shadow across the “the AI capital of the world” in San Francisco.

After Hangzhou-based High-Flyer Capital Management sent DeepSeek into the chatosphere, the self-obsessed West Coast city may no longer be the undisputed center of the AI boom, the San Francisco Standard reported.

And artificial intelligence may no longer be the hoped-for beacon for turning around the toughest office market in the nation, hailed by its former mayor as “the AI capital of the world.”

On Sunday, DeepSeek soared to the top of the U.S. Apple Store’s ranking of most downloaded free apps.

Venture capitalist Marc Andreessen evoked the USSR suckerpunch to the West in 1957 when it launched the first satellite into space, calling the Chinese model’s release “AI’s Sputnik moment.”

Meta researchers panicked that their next AI model won’t perform as well as DeepSeek and reportedly set up “war rooms” to dissect its code.

The High-Flyer quantitative hedge fund was founded in 2015, the same year as OpenAI in San Francisco. But the trading firm launched its exploratory project in 2023, a year after ChatGPT kicked off the consumer AI boom.

It has also thrown into question whether the industry hype about San Francisco’s economy as the “AI capital of the world” has legs, according to the Standard.

Billions poured into locally based companies like OpenAI and Anthropic have helped support local businesses — as well as boost a collapsing commercial estate market.

In less than two years, High-Flyer has debunked the conventional Silicon Valley wisdom that no company can compete with U.S. firms without spending hundreds of millions of dollars on specialized chips.

A reckoning, if it happens, could impact local real estate.

Since OpenAI released ChatGPT in 2022, artificial intelligence companies in San Francisco have leased more than 1.7 million square feet of offices through August, according to the Standard.

The surge in leasing is fresh air to the national center of a pandemic commercial real estate crash, where Big Tech slashed its office presence by nearly half, leaving nearly 37 percent of San Francisco’s offices vacant.

By December, tech office leasing in the city reached 3.6 million square feet, 47 percent of the 7.6 million square feet of offices leased last year. Nearly half the tech leasing activity — or 21 percent of the office total — was driven by AI firms, according to CBRE.

The majority of AI companies in San Francisco are startups, with the average lease by an AI firm last year at 15,000 square feet, according to JLL.

That average is skewed by OpenAI and ScaleAI, which signed 315,000-square-foot and 180,000-square-foot leases last year, respectively. The vast majority of AI companies are taking space under 10,000 square feet.

AI leasing helped make the end of the year the first positive quarter for San Francisco’s office market in five years.

— Dana Bartholomew