Microsoft CEO Satya Nadella moved quickly to get DeepSeek’s R1 deployed on Azure in January. Nadella appeared to have anticipated the rise of a breakthrough like R1, and now he says a new bar has been set for the company’s own AI work.

Speaking at an employee-only town hall last month, Nadella and his senior leadership team discussed DeepSeek and the company’s own $80 billion investment into AI at length, answering questions from employees about the giant spend and its effect on Microsoft’s carbon-free goals, sources at the company tell me.

DeepSeek made headlines earlier this year after doing a bunch of low-level systems work to optimize below Nvidia’s CUDA layer with architecture changes that allowed its AI models to be more compute efficient. The efficiency, use of pretrained models, and small team required to pull it off all caught Nadella’s attention.

“What’s most impressive about DeepSeek is that it’s a great reminder of what 200 people can do when they come together with one thought and one play,” Nadella said in response to a question about how Microsoft will keep up in the ongoing AI battle. “Most importantly, not just leaving it there as a research p …

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