Artificial Intelligence – The Asymptote pt. III

Perplexity starts a race to the bottom with deep research.

• In the space of a month, pretty much everyone now has or will soon have a deep research tool confirming that performance gains are flatlining and that beyond a fat wallet, there are no real barriers to entry in the generative AI game.
• What will follow now will be a rapid race to the bottom as Perplexity has made limited access to the latest hot product free.
• Perplexity.ai is the latest to launch a deep research tool (see here) which is a tool that takes a request, researches it and puts together a report detailing the information found and any conclusions that can be drawn to address the original question.
• OpenAI launched its product with much fanfare on February 3^rd 2025, but the fact that it is only available on the $200 per month tier, means that take-up will be slow until it is available at lower tier pricing.
• The attention this launch received highlights OpenAI’s media power advantage as this launch was not an amazing new product but a move to bring its offering into line with the competition.
• One of the others is Google which launched Gemini Advanced Deep Research at the end of 2024 and it is available as part of the $30 per month Google One package.
• With Perplexity and Grok 3 as of last week, the field is already getting crowded and with everyone now focused on “reasoning models”, it is now only a matter of time before all of the others launch direct competitors.
• The sheer speed of model launches and the very short time that it takes everyone to catch up with a similarly performant model or service is a clear indication that model performance improvements are flatlining.
• This in turn means that the price of the services will quickly become a race to the bottom with new services constantly being added to paid tiers or paid services being made available for free.
• Perplexity is offering a limited number of searches and access limited to the basic model, but the glass ceiling has been broken.
• This is a classic sign of an asymptote where performance improvements become increasingly incremental despite continued high growth in investments that are needed to achieve these improvements.
• At some point, investors are going to start asking where the returns are on the investments that they have made and with a race to the bottom in terms of pricing, the returns are likely to be lower than expected.
• This will be exacerbated to some degree by DeepSeek’s methodologies which may make it much cheaper to create these sorts of services meaning that even more players can enter the market.
• Without the creation of a super-intelligent machine that can replace 90% of human economic tasks, the valuations of all of these companies look much too high to me.
• RFM Research has long concluded that there is no super-intelligent machine on the horizon with the only alternative being a correction when reality finally reappears.
• This correction is unlikely to be anything like as bad as the Internet Bubble as even without a super-intelligent machine, generative AI has many use cases where there is plenty of money to be made.
• When this happens, the likes of OpenAI, Anthropic, Mistral and so on are likely to run out of money and be acquired by much bigger players with deep pockets.
• Hence, this is not a sector I would want to have a direct position in but if I had to choose something, it would be Nvidia given it is making real money and real profits now and its valuation is far from outrageous.
• However, in the adjacencies of nuclear power and inference at the edge there are still opportunities to be had meaning that I am very happy to stay put with this theme.