AI Bubble Update: Kimi K3 Sends China into Chaos

**Josh** (0:00)
China just released Kimi K3, the most powerful model to ever come out of the country. The question on everyone's mind is, is this going to create a bubble, or is it already happening in front of us? Kimi K3 is the most impressive model, leapfrogging the frontier American models and some benchmarks, and doing so in a way that is significantly cheaper and open source. So the conversation over the entire weekend is not only, is there a bubble, but how credible, how strong is the American mode as it comes to China? We always discuss the timelines and how America is normally ahead by let's say 6 to 12 months.
It seems like that timeline has shrunk in a little bit, and you see how these two countries are juxtaposing the way they're going about it. There was two speeches that happened on Friday. One was from America blaming China on raking votes, and the other was China very strongly presenting themselves as the up and coming AI leader. So there's a lot to unpack here, probably starting with the market which was nothing but red over the last couple of days because you have to assume there is a little bit more uncertainty than normal as it relates to just AI models in general, and how it turns into China. I mean, look at this screen share. That is a wall of red.

**Ejaaz** (1:07)
Yeah. So last week was basically China's retaliation to the American frontier models, and it happened in a pretty big way. As you mentioned, Moonshot Labs, which was the creator of this model called Kimi K3, which is completely open-source, is now the largest open-source model ever. It comes in at around 2.8 trillion parameters, and it's super cheap to use when you compare it to Fable 5 and GPT 5.6. Now, the question on everyone's mind is, is it necessarily good enough? If you look at the Nasdaq market and how it responded last week, it shaved off hundreds of billions of dollars, like it was down completely in response to this model. The reason being is, doesn't matter if it competes with Fable 5 or if it's as good as GPT 5.6, what matters is the cost. When you look at Fable 5 specifically, you're paying around 50 to 56 bucks per million tokens input. And when you compare that to Kimi K3, you're paying around 50 cents to a dollar. So if you're an enterprise that is burning tens to hundreds of millions of dollars, or if you're a software engineer that is spending all your tokens on an expensive $200 a month membership, you might want to consider an alternative model. And in this case, it'll be a Chinese model. Now, the craziest part about this is the valuation of Moonshot Labs in January of this year was $4.3 billion. Now, after they released Kimi K3 just last week, they announced that they're raising at a new valuation of $30 billion.
That is still 30x cheaper than OpenAI's $1 trillion valuation. And Anthropic is valued at the same amount. So the question in everyone's mind is, are the American labs overpriced or are the Chinese labs underpriced? We're going to have a series of Chinese IPOs coming from the AI labs, such as DeepSeek and Moonshot, over the next roughly six months or so, and the Chinese president Xi Jinping reinforced this in a very big way on Thursday, where he took the stage in Shanghai in person at the World AI Conference for the first time since 2018 to make his first public commentary on the AI landscape. And he had some pretty major takeaways for everyone.

**Josh** (3:11)
Yeah, like you mentioned, this is the first time since 2018 taking this stage. This is a fairly big deal. And his kind of thesis could be summarized in one line, which is AI should not be a solo performance by a single country. It should be a symphony of international cooperation, followed by a shot at Washington, which said we should jointly oppose over stretching the national security concept in the field of AI or placing one country's security over that of others. And it was really interesting. I mean, I mentioned this in the intro briefly, to see that kind of juxtaposed against the other speech that was happening simultaneously on Friday night, but back in Washington, where President Trump, he went on to accuse Beijing of the largest compromise of election data in history. So while one president is standing up in front of the AI conference for the first time, offering the world basically free frontier intelligence through these open-source weights, another one is complaining that we've been robbed and that we're not simultaneously, while this kind of lead that we have is continuing to shrink. And there's this post, he says, I shared it with you just for recording. I loved it. It was from Travis Kalanick. And for those who don't know, Travis Kalanick, founder of Uber, he's the guy who as famously went into China and convinced somehow to allow him to let row taxis into this country is very familiar with how they work culturally.