Generative AI's Act o1: The Reasoning Era Begins | Sequoia Capital

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Original article

Key takeaway

For entrepreneurs: The evolving landscape of Generative AI offers significant opportunities in the application layer, where custom cognitive architectures can create unique, domain-specific solutions that address real-world problems.
For investors: The most promising investment opportunities lie in the application layer of Generative AI, where innovative companies are developing agentic applications that leverage advanced reasoning capabilities to deliver tangible outcomes.

Summary

"Generative AI’s Act o1" by Sonya Huang and Pat Grady from Sequoia explores the current state and future trajectory of the Generative AI market. The essay highlights the stabilization of the foundational layer and the emerging focus on enhancing AI's reasoning capabilities, akin to "System 2" thinking. This shift is paving the way for new agentic applications that can perform complex tasks with human-like reasoning. The authors discuss the implications for entrepreneurs and investors, emphasizing opportunities in developing applications that integrate these advanced AI capabilities.

Insights

The Generative AI market is stabilizing with key players like Microsoft/OpenAI and Google/DeepMind leading the foundational layer.
A shift towards enhancing AI's reasoning abilities is underway, inspired by models like AlphaGo, which utilize inference-time compute for deliberate problem-solving.
New cognitive architectures are being developed to enable more sophisticated interactions between AI systems and users.
The application layer presents significant opportunities for innovation, particularly in creating domain-specific solutions using advanced reasoning capabilities.
Agentic applications are emerging across various sectors, offering services with reduced costs due to improved inference efficiencies.

Implications

Entrepreneurs should focus on developing applications that leverage AI's enhanced reasoning capabilities to solve specific real-world problems.
Investors should consider directing funds toward companies in the application layer that are creating value through innovative cognitive architectures.
The evolution of AI reasoning may lead to a new wave of applications that redefine how tasks are automated and services are delivered.
As AI models become more capable of reasoning, there may be a shift from software-as-a-service to service-as-a-software, expanding the addressable market significantly.
The development of multi-agent systems could further enhance AI's ability to perform complex tasks collaboratively.