A Technique That Changed the Rules In January 2025, DeepSeek released R1, a reasoning model that matched the performance of OpenAI’s o1 on mathematics and coding benchmarks, at a fraction of the training cost. The immediate market reaction, a $600 billion wipeout from Nvidia’s market capitalisation in a single trading session, reflected the scale of what had happened. But the market was reacting to the symptom rather than the cause. The cause was AI distillation, and its implications for enterprises, geopolitics, and the structure of the global AI industry are still unfolding. AI distillation is a method in AI development that enables a smaller “student” model to replicate or approximate…