DeepSeek released their open source1 R1 model and wiped $600 billion off of Nvidia's valuation in a single day.
In doing so, they demonstrated that development of open source software and other public goods can be hugely profitable.
Let me explain.
By developing a high-quality LLM cheaply, DeepSeek demonstrated that future demand for Nvidia's GPU technology may have been drastically overestimated, leading to a steep correction. By open sourcing their model and training approach, they made it immediately accessible to industry experts who could verify that the claims were accurate.
DeepSeek, intentionally or not, showed us that open source technology can move large amounts of money in public markets. And when money moves, there's money to be made.
Here, I've generalized the playbook for funding a high-impact, high-cost open source project:
$X, my team can build a viable open source version of this technology and bring it to market, dismantling the economic moat around a company with a market cap of $X × Y".I'll note that it's currently unclear if DeepSeek made any investment profits from the R1 release, but they may as well have been rewarded for their generous development efforts!
We live in a world where the market cap of Nvidia is roughly 3 trillion dollars, even after the hit from the R1 release. Developing advanced accelerator hardware is indeed expensive, but it could still be done in theory for a tiny fraction of that price.
We currently see the same pattern across many industries: systematically overvalued public companies whose market caps fail to account for the risk of an upstart competitor wiping out their margins. That risk is indeed small considering the high barriers to bootstrapping a profitable competitor - economies of scale, network effects, brand recognition, etc. But what if that competitor doesn't actually have to be profitable?
Open source as a distribution model can spread technology much further, and much faster, because the friction of adoption is near-zero. People recognize, appreciate, and are happy to share tools that "just work" without upfront cost, subscription fees, forced obsolescence, and nonconsensual telemetry. Many open source alternatives to proprietary tools, if they even exist, currently lack features or polish due to the difficulty of funding their development. But, as interested venture capitalists profitably invest in these tools, that gap will rapidly shrink and could disappear entirely.
One might argue that this strategy is an unfair attack against a company that did nothing wrong. My response is that it's justified - simply put, that company is overvalued and/or exploiting their dominant market position. If neither of these were true, the strategy couldn't be effective in the first place. In the meantime, you're able to bring an ethical product to the market at a much lower cost to consumers. This seems to me like an unambiguous force of good for humanity.
As another way of looking at it, consider that the market cap of publicly traded companies is roughly correlated with the value those companies provide to humanity. Extremely high valuations can indicate technical excellence in business strategy execution, but they could also highlight problematic concentrations of power. We're all too familiar with the enshittification of once-great products and companies, with consequences ranging from minor inconvenience to significant loss of time and property. The development of open source alternatives to safeguard against these single points of failure should be commended.
I'm not a law expert, so I'd love to hear feedback from others on this. But my take is that this should be totally legal in the U.S. if executed carefully. LLMs appear to agree, with the expected caveats that you should still consult a lawyer. The two primary concerns would be insider trading and market manipulation.
Insider trading entails making trading decisions based on non-public information. If you're developing your product in the open, there isn't really any insider information. If you develop in private and then open source it later, just be sure to take your market positions after all the relevant materials are released.
With regards to market manipulation, as long as you're making truthful claims about the nature of your open source product offering, there shouldn't be any problems. Any movement in the market is just the resolution of a newly-discovered, but legitimate, inefficiency. It's definitely worth staying on the safe side with your claims in case you do end up in court though - large public companies can be litigious.
Raising venture capital is not strictly necessary; this method could be used by a fully bootstrapped entrepreneur to maximize profit potential. This does however negate the availability of upfront funds, which is one of the key benefits of the method.
Theoretically, you could also execute the same business plan while registered as a non-profit organization. This would limit your ability to take on venture capital, but you might still be able to take on sizeable donations from savvy investors who understand the potential impact of your vision. Tax-advantaged status may be helpful for squeezing some extra mileage out of the money you receive.
One other thing to note: this doesn't have to be executed as a short play against a company. If a company's product can suddenly be made significantly more valuable by an accompanying open source ecosystem, that could enable a significant upwards correction. George Hotz either secretly understood this, or almost understood it, in his founding of tiny corp. He correctly identified that AMD's hardware could be much more valuable for AI workloads if it weren't for driver issues, but it's unclear if he planned any accompanying stock market plays.
I've open sourced this insight because as a consumer, I benefit from a market that must compete with the availability of high quality open source technology. So, I hope that folks will take it and run with it.
To open source developers: dream big, and then even bigger. There is room for you to make profit and do the world a huge service, all without compromising on your values.
To venture capitalists: consider this as a new tool in your toolbox. Public markets are full of untapped potential right now; this may unlock a whole new class of investment outcomes.
To vendors of proprietary technology: watch out, the open source revolution is coming!