TL;DR: The release of Zhipu AI’s GLM-5 is not a technological breakthrough; it is a manufacturing breakthrough. Just as Chinese EVs commoditized electric cars, Chinese AI models are commoditizing intelligence via "Knowledge Distillation." We are entering a brutal phase of "Involution" (Neijuan). The market is splitting: You are either the expensive Genius (OpenAI/Anthropic) or the dirt-cheap Commodity (GLM/DeepSeek). Everyone in the middle will die.
James here, CEO of Mercury Technology Solutions. Tokyo - February 16, 2026
A screenshot of GLM-5 benchmarks has been circulating on Threads this weekend. People are freaking out. They are saying China has achieved "Compute Sovereignty" using Huawei Ascend chips and is challenging Claude Opus performance for pennies on the dollar.
Is this a miracle? No. It is industrial warfare. To understand what is happening, you need to understand the concept of "Distillation" and why the AI market is about to look exactly like the EV market.
1. The Secret Sauce: Knowledge Distillation
How does GLM-5 offer Claude-level logic for $0.80 per million tokens? It’s not magic. It’s Distillation.
Think of OpenAI’s o1 or Anthropic’s Claude 4.5 as the "Genius Professor." They spent billions of dollars reading every book in the library to learn how to think. GLM-5 (and DeepSeek) are the "Smart Students." Instead of reading the library, the Student just asks the Professor millions of questions and memorizes the answers and the logic.
- The Teacher (OpenAI): Pays Billions in R&D and "Trial and Error."
- The Student (GLM): Pays minimal training costs by mimicking the Teacher's optimal path.
The Result: GLM-5 effectively uses a "MoE" (Mixture of Experts) architecture—744B total parameters, but only 40B active per token. It is lean, mean, and built on the back of someone else's R&D.
2. Innovation vs. "Biomimetic Optimization"
Is this stealing? OpenAI thinks so (they banned DeepSeek for TOS violations). But in the open-source world, Data Distillation is an open secret.
This proves that China’s advantage isn't in fundamental algorithm breakthroughs (those still happen in Silicon Valley). Their advantage is Extreme Engineering Optimization. They are paving the road that Silicon Valley cleared. They don't need Nvidia’s H100s to discover the path; they just need Huawei’s Ascend 910s to follow it efficiently.
3. The "Involution" (Neijuan): The Middle Class Dies
This is the "EV Moment" for AI. Just as BYD forced Tesla to slash prices, Chinese models are forcing a "Race to the Bottom." This creates a market phenomenon called Involution: Intense competition that destroys profit margins to capture market share.
The Impact:
- The Leaders (OpenAI, Anthropic): Will survive by being the "Premium Brand" with the absolute smartest (but expensive) models.
- The Commodities (GLM, DeepSeek): Will survive by being "Good Enough" and virtually free.
- The Middle: The startups trying to build "Medium Models" with "Medium Prices"? Dead. They cannot compete on IQ with the Americans or on Price with the Chinese.
4. The Investment Shift: Goodbye OpenAI Monopoly
I used to be 100% bullish on the OpenAI ecosystem. I am no longer so certain. The "Moat" of pure intelligence is evaporating faster than we thought. The market is currently washing out "OpenAI Concept Stocks."
However, there is one company that is perfectly positioned. They are not betting on just one horse.
- They have their own proprietary "Brain" (Gemini).
- They are the largest investor in the "Alternative Brain" (Anthropic).
- They own the "Android" OS that these agents will live on.
Google (Alphabet). While everyone fights over the model, Google owns the Platform, the Backup Model, and the Chips (TPU).
Conclusion: Pick Your Lane
The era of "AI as a Tech Miracle" is over. The era of "AI as a Utility Bill" has begun. You now have a choice: Do you pay a premium for the Original Brain (Silicon Valley)? Or do you build your business on the Distilled Commodity (Shenzhen)?
For mission-critical logic, I still pay the Americans. For everything else? The economics of $0.80/million are hard to ignore.
(Which company do you think is the real hedge against OpenAI? Drop a comment below.)
Mercury Technology Solutions: Accelerate Digitality.
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