State of AI in March 2025

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THEWHITEBOX

State of AI: March 2025

Recently, the AI industry has become pure chaos. It’s hard to know who’s ahead, what true and what’s false, what trends are actually moving the needle, or what markets are thinking.

But wouldn’t it be nice if you could utter the phrase “ok, now I understand where things stand in AI.”

Today, I want you to provide you just that by giving you my honest opinion on the current state of affairs in the three main areas: Technology (what trends we are seeing in hardware and software), Markets (how markets are reacting/should be reacting), and Product (how products are evolving), to answer the great questions everyone is asking:

Are models really commoditizing?

Will Anthropic’s hybrid models force OpenAI to rethink its model strategy?

Are agents actually what they are claimed to be?

An honest, crude look at AI revenues and the state of markets

And the latest innovations in robotics and intelligence efficiency, the most important trend in 2025.

By the end of this read, you’ll have better intuition than most of what’s going on and in first principles, like we always do.

MODEL COMMODITIZATION

One Commoditized, One Not?

If you read this newsletter regularly, you already know, but just in case, here's a quick recap on AI models. We currently have two prominent types: reasoning and non-reasoning.

The former thinks for longer on a given task, allowing it to improve performance in maths and coding; the latter gives you a one-shot, immediate response, good for intuitive tasks like writing, creative iteration, etc.

It’s important to note that the reasoning model is a non-reasoning model that has undergone ‘multi-step reasoning training’. At heart, they are identical; the only change is that the reasoning model has learned to approach problem-solving more step-by-step, allowing it to explore different ways to solve the problem. For instance, OpenAI’s o3 reasoning model is GPT-4o (non-reasoning model) post-trained for reasoning.

Currently, there is a growing belief that frontier AI models, in general, are commoditizing. However, this is not as you might expect.

The commoditization pressures (models become undifferentiated, making competition a matter of price) are much larger on the reasoning models despite being a relatively newer model type.

For instance, while OpenAI still has the best reasoning model (o3, but it’s unreleased), their most powerful released reasoning model, o1-pro, has similar performance results to other available models, like Grok 3 Reasoning, DeepSeek R1, or Alibaba’s just-released QwQ Reasoning, the latter’s performance shown below:

Source

The commoditization I mentioned is because they all have collapsed on the same training method: guess and verify.

DeepSeek's release of R1 (and previously the Allen Institute's with Tulu) brought it into the limelight. It essentially involves training the model on examples that can be verified for correctness. Instead of using different training hacks, they let the model…

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