DeepSeek Reveals Theoretical Margin on Its AI Models Is 545% - Bloomb…

Saritha Rai4:11 AM · Mar 1, 2025

DeepSeek that its online service had a “cost profit margin of 545%.”

Photographer: Andrey Rudakov/Bloomberg

Chinese artificial intelligence phenomenon DeepSeek revealed some financial numbers on Saturday, saying its “theoretical” profit margin could be more than five times costs, peeling back a layer of the secrecy that shrouds business models in the AI industry.

The 20-month-old startup that rattled Silicon Valley with its innovative and inexpensive approach to building AI models, said on X its V3 and R1 models’ cost of inferencing to sales during a 24-hour-period on the last day of February put profit margins at 545%.

Inferencing refers to the computing power, electricity, data storage and other resources needed to make AI models work in real time.

However, DeepSeek added a disclaimer in details it provided on GitHub, saying its actual revenues are substantially lower for various reasons, including the fact that only a small set of its services are monetized and it offers discounts during off-peak hours. Nor do the costs factor in all the R&D and training expenses for building its models.

While the eye-popping profit margins are therefore hypothetical, the reveal comes at a time when profitability of AI startups and their models is a hot topic among technology investors.

Companies from OpenAI Inc. to Anthropic PBC are experimenting with various revenue models, from subscription-based to charging for usage to collecting licensing fees, as they race to build ever more sophisticated AI products. But investors are questioning these business models and their return on investment, opening a debate on the feasibility of reaching profitability any day soon. 

The Hangzhou-based startup said Saturday on X that its online service had a “cost profit margin of 545%” and gave an overview of its operations including how it optimized computing power by balancing load — that is managing traffic so that work is evenly distributed between multiple servers and data centers. DeepSeek said it innovated to optimize the amount of data processed by the AI model in a given time period, and managed latency — the wait time between a user submitting a query and receiving the answer.

In a series of unusual steps beginning early this week, the startup, which has espoused open-source AI, surprised many in the industry by sharing some key innovations and data underpinning its models, in contrast to the proprietary approach of its biggest US rivals like OpenAI.

Currency investors grow wary of bets on Trump tariffs

FX volatility expectations fall after traders ‘burned’ trying to react to US president’s trade threats

Currency markets are increasingly dismissive of Donald Trump’s tariff threats, raising the risk of big swings if the US president follows through on his promise to hit China, Canada and Mexico with levies next week.

Trump’s proposal to bring in levies against the EU and China unsettled the euro and currencies of other US trading partners on Thursday. But the falls were less dramatic than some of the upheavals seen in recent weeks when he began spelling out his plans. 

Measures of expected short-term volatility in currencies such as the euro and the Mexican peso have fallen since the inauguration in January.

“Having been burned on tariff trades already this year, investors are less reactive to unsupported tweets” and political rhetoric, said Jerry Minier, co-head of G10 forex trading at Barclays. 

Exchange rates have been buffeted by tariff headlines, with the dollar strengthening sharply against currencies of major trading partners on February 3 after Trump announced tariffs against Mexico, Canada and China. But the moves reversed by the end of the trading day after the president postponed the introduction of the levies against the first two countries.

Since then, market moves in response to his announcements have been smaller. Having fallen after Thursday’s broadside, the euro steadied against the dollar on Friday and at just below $1.04 remains well above the low of less than $1.02 touched in early February.

Akshay Singal, global head of short-term interest rate trading at Citigroup, said that after “trusting and believing” tariffs were coming, the currency market “wants to see them in action”.

He added: “Previously it was ‘I believe what you tell me’, and now it is ‘show me.’” The announcement and then deferral of tariffs against Mexico and Canada had shaken investor confidence that tariff headlines could be trusted, Singal said.

Investors’ expectations of swings in euro-dollar over the next month are down about a fifth from their peak in mid-January, according to an index from CME Group based on options prices.

Its index of expected volatility in the Mexican peso has also fallen since January — and is now almost half its level at the US election last year — while the equivalent measure for the Canadian dollar is also down from its early February peak. That is despite looming deadlines such as the tariffs on Mexico and Canada that are due to go into place next week.

“Our models indicate that tariff premium has unwound in recent weeks with little now priced in key [currency pairs]”, said Goldman Sachs in a note on Friday.

One currency trader at a big European bank said work days had become “weirdly slow” in recent weeks. 

“Trump will shout about some tariffs, row back from those announcements, the White House will say something totally contradictory and then Trump might post the opposite on Truth Social 10 minutes later,” the trader said. “You can’t trade that.”

Analysts said this inertia had crept into rates markets too, where fears of a boost to inflation from tariffs drove yields higher at the end of last year. 

The Ice BofA Move index, a gauge of bond investors’ expectations of Treasury market volatility, is well below the highs reached in the run-up to the US election.

“You would think volatility would be higher given how little clarity the market has now, but the market has become numb to it, until [investors] actually see the path forward,” said Gennadiy Goldberg, head of US rates strategy at TD Securities. 

However, some investors and analysts say there is a growing risk that the market is no longer taking the potential economic fallout from tariffs seriously enough, with “complacency” now a danger, according to Barclays’ Minier.

Some believe that expectations of lower volatility make a big sell-off more likely if significant trade taxes are eventually implemented.

The day Trump “does follow through [on blanket tariffs], there would be a knee-jerk reaction, because most people think it is not priced in”, said Finn Nobay, a trader at investment firm Payden & Rygel.

Our workless young: a scandal we cannot ignore

Almost a million Britons aged 16 to 24 are without an occupation, hopeless and forgotten

The writer is a former Labour education and employment secretary, home secretary and secretary of state for work and pensions. Stephen Greene, CEO of RockCorps, also contributed

As the UK struggles to recover from prolonged stagnation, addressing economic inactivity has never been more urgent. It has affected all segments of society but it is our young people, those who hold the key to a prosperous future, that are most impacted by a lack of access to the labour market. 

With sectors like health and social care facing shortages, and the net zero transition critically dependent on a skilled workforce, the need to equip this next generation with the right skills is indisputable. 

Currently, even with the government’s “youth guarantee” for 18- to 21-year-olds, designed to ensure access to an apprenticeship or training opportunity, we are light years away from delivering a solution for the 987,000 16- to 24-year-olds not in education, employment or training (known as Neets). The latest labour market figures from the ONS revealed a staggering increase of 110,000 over the past 12 months.

This is a challenge — for the government, for business and for us all.

The Department for Culture, Media and Sport is consulting on youth policy; the Department for Work and Pensions is preparing a white paper on welfare reform. Meanwhile, the announcement that the National Citizen’s Service will be wound down from this month will mean there is another vacuum, this time in volunteering.

A report by the charity Youth Futures Foundation found that 62 per cent of the 2,500 young people it surveyed believe it’s become more difficult to find a job than 10 years ago. Forty four per cent say a lack of skills or training is the biggest barrier (followed by low wages in entry-level jobs).

The longer this goes unaddressed, the harder it becomes to solve. The answer lies not in any one quick fix, but a comprehensive public-private collaboration to allow people from all backgrounds to enter the world of work and build meaningful careers there.

For those who have no clear ideas about their future, programmes must be in place to stop them falling through the cracks. The formation of a new body, Skills England, is a step in the right direction; the recent Get Britain Working white paper has given shape and direction to how the government wants to use devolution to roll out tailored, local delivery of schemes. In addition, smart choices about apprenticeship levy reform and the wider skills landscape will engage businesses and make them feel part of the process rather than having it imposed on them. As ever, though, turning plans into reality is what matters. 

One example of engaging those furthest from the labour market is the UK Year of Service, of which we are co-founders — a model for addressing the challenge of economic inactivity among young people. Through paid work placements, primarily in community projects, young leaders develop durable skills needed by employers across the UK, providing them with experience on which to build a working life. In the early pilot, 88 per cent of participants moved on to employment or more education. These young people had been stuck in a revolving door of short-term schemes and subsequent disillusionment. They lacked the confidence and self-esteem to have a mapped-out career path. 

This is nothing like the idea of national service bandied about during the general election. Instead, it could be critical infrastructure in helping Britain grow, with young people working on some of our most challenging issues. It’s no silver bullet, but demonstrates the type of practical, applied solution that makes a tangible difference. 

The key to getting this right is proper engagement and consultation, then a cross-government delivery plan. Giving young people the chance of success is not optional. It’s vital to unlocking the country’s potential.

Inheriting is becoming nearly as important as working

More wealth means more money for baby-boomers to pass on. That is dangerous for capitalism and society

Feb 27th 2025

Work hard, children are told, and you will succeed. In recent decades this advice served the talented and the diligent well. Many have made their own fortunes and live comfortably, regardless of how much money they inherited. Now, however, the importance of hereditary wealth is rising around the rich world, and that is a problem.

People in advanced economies stand to inherit around $6trn this year—about 10% of GDP, up from around 5% on average in a selection of rich countries during the middle of the 20th century. As a share of output, annual inheritance flows have doubled in France since the 1960s, and nearly trebled in Germany since the 1970s. Whether a young person can afford to buy a house and live in relative comfort is determined by inherited wealth nearly as much as it is by their own success at work. This shift has alarming economic and social consequences, because it imperils not just the meritocratic ideal, but capitalism itself.

In part, the inheritance boom is a reflection of a wealthier and ageing society. As economies have become richer, they have accumulated capital per worker—capital that someone has to own. But because the pace of economic growth has slackened and housing markets have boomed, the scale of this wealth relative to incomes has ballooned. Nowhere is this combination of towering wealth and enduring sclerosis more evident than in Europe, where productivity growth has been dismal.

More wealth means more inheritance for baby-boomers to pass on. And because wealth is far more unequally distributed than income, a new inheritocracy is being born.

You can see this in the shifting fortunes of the super-rich. For much of the 20th century vast estates were often broken up by bad investing, or by war and inflation. By one calculation, if America’s rich families in 1900 had invested passively in the stockmarket, spent 2% of their wealth each year and had the usual number of children, there would be about 16,000 old-money billionaires in America today. In fact, there are fewer than 1,000 billionaires and the vast majority of them are self-made.

These trends are being overturned, however, perhaps because billionaires are both amassing wealth and are better at preserving their riches. In 2023, 53 people became billionaires thanks to inheritance, not far short of the 84 who made their own fortunes, according to UBS, a bank. That may be because it is now easy to park wealth in an index fund, and the principles of wealth management are better understood. Moreover, many governments have obligingly cut inheritance taxes.

The most striking thing about the inheritocracy, though, is that it is not just about the uber-rich. The typical heir is someone inheriting a normal house, or the proceeds from its sale, not a superyacht or a country pile. And housing wealth has rocketed in recent decades, especially in apex cities like London, New York and Paris. Those who were fortunate enough to buy property before the long boom have made lots of money, passing on a windfall to their heirs. As a consequence, bankers and corporate lawyers now fight bidding wars over houses from the estates of deceased taxi drivers. As housing has become ever more unaffordable in places like New York and London, so a 90th-percentile income has become too small to pay for a 90th-percentile life. You must have significant capital, too—if not from your parents’ estate, then from the Bank of Mum and Dad.

If you consider this as a whole, the growing importance of inheritance starts to become clear. In Britain one in six of those born in the 1960s is projected to receive an inheritance that exceeds ten years of average annual earnings for that generation. For those born in the 1980s, the ratio rises to one in three. The inequality of what people inherit, meanwhile, is startling. A fifth of 35- to 45-year-olds are expected to inherit less than £10,000 ($13,000), whereas a quarter are expected to inherit more than £280,000.

For supporters of free markets, the rise of the new inheritocracy should be deeply disturbing. For a start, it creates a rentier class that faces a series of bad incentives. A loophole-ridden tax system means that the wealthy spend a lot of time gaming the rules; it would be better used to direct their capital to more productive uses instead. To protect their assets, homeowners become nimbys, blocking building and making housing unaffordable for those without inherited wealth. Knowing they can rely on their inheritance, moreover, the new rentiers may face little incentive to work or innovate.

More worrying still is how a underclass of non-beneficiaries is becoming increasingly left behind—and increasingly disaffected. If property becomes ever harder to buy, and a comfortable life harder to achieve, the incentive of young, aspirational workers to strive will be blunted. And when they believe that the system is stacked against them, their support for mainstream political parties withers.

Family fortunes

That is why fixing the problem is urgent. It would be mad to wish that inflation and war destroy fortunes, as they did in the 20th century. This newspaper has long argued that inheritance taxes are the fairest tool to deal with inheritocracy. Yet the taxes are so unpopular that, instead of enforcing them, governments have introduced loophole after loophole, raised the threshold at which they apply, or dismantled them altogether.

Fortunately, there are other remedies. Building enough houses in the right place is the single biggest action governments can take to restore the link between work and wealth. Levying sufficient annual property taxes, especially those that target underlying land values, would also help, because the tax would be capitalised as a fall in house prices, bringing down house-price-to-income ratios. And anything that boosts economic growth, so desperately needed in Europe, would bring down wealth-to-GDP ratios. The heyday of meritocracy brought with it social mobility, growth and prosperity. With a little hard work, those days can return. ■

Inheriting is becoming nearly as important as working

More wealth means more money for baby-boomers to pass on. That is dangerous for capitalism and society

Feb 27th 2025

Work hard, children are told, and you will succeed. In recent decades this advice served the talented and the diligent well. Many have made their own fortunes and live comfortably, regardless of how much money they inherited. Now, however, the importance of hereditary wealth is rising around the rich world, and that is a problem.

People in advanced economies stand to inherit around $6trn this year—about 10% of GDP, up from around 5% on average in a selection of rich countries during the middle of the 20th century. As a share of output, annual inheritance flows have doubled in France since the 1960s, and nearly trebled in Germany since the 1970s. Whether a young person can afford to buy a house and live in relative comfort is determined by inherited wealth nearly as much as it is by their own success at work. This shift has alarming economic and social consequences, because it imperils not just the meritocratic ideal, but capitalism itself.

In part, the inheritance boom is a reflection of a wealthier and ageing society. As economies have become richer, they have accumulated capital per worker—capital that someone has to own. But because the pace of economic growth has slackened and housing markets have boomed, the scale of this wealth relative to incomes has ballooned. Nowhere is this combination of towering wealth and enduring sclerosis more evident than in Europe, where productivity growth has been dismal.

More wealth means more inheritance for baby-boomers to pass on. And because wealth is far more unequally distributed than income, a new inheritocracy is being born.

You can see this in the shifting fortunes of the super-rich. For much of the 20th century vast estates were often broken up by bad investing, or by war and inflation. By one calculation, if America’s rich families in 1900 had invested passively in the stockmarket, spent 2% of their wealth each year and had the usual number of children, there would be about 16,000 old-money billionaires in America today. In fact, there are fewer than 1,000 billionaires and the vast majority of them are self-made.

These trends are being overturned, however, perhaps because billionaires are both amassing wealth and are better at preserving their riches. In 2023, 53 people became billionaires thanks to inheritance, not far short of the 84 who made their own fortunes, according to UBS, a bank. That may be because it is now easy to park wealth in an index fund, and the principles of wealth management are better understood. Moreover, many governments have obligingly cut inheritance taxes.

The most striking thing about the inheritocracy, though, is that it is not just about the uber-rich. The typical heir is someone inheriting a normal house, or the proceeds from its sale, not a superyacht or a country pile. And housing wealth has rocketed in recent decades, especially in apex cities like London, New York and Paris. Those who were fortunate enough to buy property before the long boom have made lots of money, passing on a windfall to their heirs. As a consequence, bankers and corporate lawyers now fight bidding wars over houses from the estates of deceased taxi drivers. As housing has become ever more unaffordable in places like New York and London, so a 90th-percentile income has become too small to pay for a 90th-percentile life. You must have significant capital, too—if not from your parents’ estate, then from the Bank of Mum and Dad.

If you consider this as a whole, the growing importance of inheritance starts to become clear. In Britain one in six of those born in the 1960s is projected to receive an inheritance that exceeds ten years of average annual earnings for that generation. For those born in the 1980s, the ratio rises to one in three. The inequality of what people inherit, meanwhile, is startling. A fifth of 35- to 45-year-olds are expected to inherit less than £10,000 ($13,000), whereas a quarter are expected to inherit more than £280,000.

For supporters of free markets, the rise of the new inheritocracy should be deeply disturbing. For a start, it creates a rentier class that faces a series of bad incentives. A loophole-ridden tax system means that the wealthy spend a lot of time gaming the rules; it would be better used to direct their capital to more productive uses instead. To protect their assets, homeowners become nimbys, blocking building and making housing unaffordable for those without inherited wealth. Knowing they can rely on their inheritance, moreover, the new rentiers may face little incentive to work or innovate.

More worrying still is how a underclass of non-beneficiaries is becoming increasingly left behind—and increasingly disaffected. If property becomes ever harder to buy, and a comfortable life harder to achieve, the incentive of young, aspirational workers to strive will be blunted. And when they believe that the system is stacked against them, their support for mainstream political parties withers.

Family fortunes

That is why fixing the problem is urgent. It would be mad to wish that inflation and war destroy fortunes, as they did in the 20th century. This newspaper has long argued that inheritance taxes are the fairest tool to deal with inheritocracy. Yet the taxes are so unpopular that, instead of enforcing them, governments have introduced loophole after loophole, raised the threshold at which they apply, or dismantled them altogether.

Fortunately, there are other remedies. Building enough houses in the right place is the single biggest action governments can take to restore the link between work and wealth. Levying sufficient annual property taxes, especially those that target underlying land values, would also help, because the tax would be capitalised as a fall in house prices, bringing down house-price-to-income ratios. And anything that boosts economic growth, so desperately needed in Europe, would bring down wealth-to-GDP ratios. The heyday of meritocracy brought with it social mobility, growth and prosperity. With a little hard work, those days can return. ■