DeepSeek: China's AI Breakthrough Sparks Tech Sector Boom and National Pride

Will DeepSeek Position China as a Leader in AI Market?

Artificial intelligence has transformed industries, economies, and life as a whole. China has recently taken a full swing in the AI sector of the economy, which put it into a competitive lead position with global leaders like the United States. DeepSeek is extremely responsible in China in terms of fighting for AI supremacy and, with incessant innovation and research, drives advancement through governmental support for its ambitions. DeepSeek is an AI model focusing on and . It is designed to compete with other AI models that lead the world in every corner of the globe. As a result of its developing machine learning abilities, enhancing data processing, and expanding applications of AI, DeepSeek is an aid to the technological development of China. The primary strength of DeepSeek is that it can process vast amounts of data efficiently. China has enormous datasets, which aid in improving AI training models and their accuracy. DeepSeek utilizes such data to improve machine learning and make AI solutions more efficient. DeepSeek is highly responsible in China for fighting for AI dominance, and continuous innovation research advances and government support drive the ambitions of AI in China.

Amid DeepSeek frenzy, Chinese companies detail use of AI

DeepSeek's AI platform, which threatens to upend the economics of a still-emerging industry, has spilled over into investor speculation about its potential positive effects on China's broader tech sector and to patriotic calls for an upward repricing of Chinese assets.Chinese automaker Great Wall Motor and China's leading telecoms providers are integrating the AI model released by DeepSeek into their offerings, the latest Chinese companies looking to capitalize on the start-up's breakthrough and attention. Hebei-based Great Wall - China's first listed car maker - confirmed to Reuters it had integrated DeepSeek into its connected vehicle system, which it has branded "Coffee Intelligence." State-run publication Securities Times first reported the Great Wall development on Sunday. Separately China's Ministry of Industry and Information Technology (MIIT) said on Saturday that the country's three largest telecom companies - China Mobile, China Unicom and China Telecom - were looking to "promote the inclusive application of the latest AI technology" and were working with the DeepSeek open source model. DeepSeek's AI platform, which threatens to upend the economics of a still-emerging industry, has spilled over into investor speculation about its potential positive effects on China's broader tech sector and to patriotic calls for an upward repricing of Chinese assets. Chinese investors have rushed into AI-related stocks, including Chinese chipmakers, software designers and data centre operators in recent days. On Sunday, two listed companies who had been touted by investors as potential beneficiaries of DeepSeek's lower-cost model cautioned investors their business outlook had not changed - even as Beijing celebrated the efforts of other big companies to integrate DeepSeek's AI platform. Beijing-based Capitalonline Data Service, which provides cloud computing services, said in a statement to the Shenzhen stock exchange it had deployed the DeepSeek-R1 model. The company's shares jumped 49% between Wednesday and Friday last week. In its statement it said the business effect of the DeepSeek rollout and any impact on the company's future performance were both uncertain. Shenzhen-based MeiG Smart Technology company, which provides wireless data terminals for IoT devices, said in its own statement to the Shenzhen exchange that it was working on the adaptation of DeepSeek-related models but remained in the early stages of that work. It said development work had not generated any new business. MeIG's shares jumped 33% from Wednesday to Friday. Other Chinese companies, including Tencent and Huawei, have said in the last week that they have integrated DeepSeek's model into their own offerings.

DeepSeek Sparks Hope for Renaissance in China's Tech Megacaps

The rise of Chinese AI startup DeepSeek is forcing investors to re-evaluate the nation's leading internet companies and their potential to capitalize on artificial intelligence that's boosted global peers. Market watchers are increasingly touting how the AI model will be a game changer for Chinese tech companies and their stocks, which have remained under pressure by concerns over the economy. Already Alibaba Group Holding Ltd. shares surged last week over such hype, with a gauge of tech stocks entering a bull market on Friday.

Amid DeepSeek frenzy, Chinese companies detail use of AI

BEIJING (Reuters) - Chinese automaker Great Wall Motor and China's leading telecoms providers are integrating the AI model released by DeepSeek into their offerings, the latest Chinese companies looking to capitalize on the start-up's breakthrough and attention. Hebei-based Great Wall - China's first listed car maker - confirmed to Reuters it had integrated DeepSeek into its connected vehicle system, which it has branded "Coffee Intelligence." State-run publication Securities Times first reported the Great Wall development on Sunday. Separately China's Ministry of Industry and Information Technology (MIIT) said on Saturday that the country's three largest telecom companies - China Mobile, China Unicom and China Telecom - were looking to "promote the inclusive application of the latest AI technology" and were working with the DeepSeek open source model. DeepSeek's AI platform, which threatens to upend the economics of a still-emerging industry, has spilled over into investor speculation about its potential positive effects on China's broader tech sector and to patriotic calls for an upward repricing of Chinese assets. Chinese investors have rushed into AI-related stocks, including Chinese chipmakers, software designers and data centre operators in recent days. On Sunday, two listed companies who had been touted by investors as potential beneficiaries of DeepSeek's lower-cost model cautioned investors their business outlook had not changed - even as Beijing celebrated the efforts of other big companies to integrate DeepSeek's AI platform. Beijing-based Capitalonline Data Service, which provides cloud computing services, said in a statement to the Shenzhen stock exchange it had deployed the DeepSeek-R1 model. The company's shares jumped 49% between Wednesday and Friday last week. In its statement it said the business effect of the DeepSeek rollout and any impact on the company's future performance were both uncertain. Shenzhen-based MeiG Smart Technology company, which provides wireless data terminals for IoT devices, said in its own statement to the Shenzhen exchange that it was working on the adaptation of DeepSeek-related models but remained in the early stages of that work. It said development work had not generated any new business. MeIG's shares jumped 33% from Wednesday to Friday. Other Chinese companies, including Tencent and Huawei, have said in the last week that they have integrated DeepSeek's model into their own offerings. (Reporting by Kevin Krolicki, Brenda Goh and Liangping Gao; Editing by David Holmes)

DeepSeek Fever Fuels Patriotic Bets on Chinese AI Stocks

SHANGHAI/HONGKONG (Reuters) - Chinese investors are rushing into AI-related stocks, betting the artificial intelligence advance of home-grown startup DeepSeek will lead to a boom in the sector and give the initiative to China in an intensifying Sino-U.S. technology war. Feverish buying has pumped up shares of Chinese chipmakers, software designers and data centre operators amid patriotic calls for an upward repricing of Chinese assets as U.S. President Donald Trump recharges a trade war with fresh tariffs. "DeepSeek's breakthrough shows Chinese engineers are creative and capable of inventions that can compete with Silicon Valley," said China Europe Capital Chairman Abraham Zhang. "It has also stirred nationalistic fever in capital markets." DeepSeek shocked Silicon Valley and rocked Wall Street late last month with the announcement of a competitive large language model that was ostensibly cheaper to develop than those of big-spending U.S. leaders such as OpenAI and Meta. The event was described as a watershed moment by Huaxi Securities analysts and has since seen money gushing into AI-related stocks in mainland China and Hong Kong. The Hang Seng AI Index has jumped more than 5% this week while indices tracking chipmakers and IT firms surged more than 11%, helping steady the Hong Kong market as the U.S. added a 10% tariff to Chinese imports. On the mainland, investors returning from a week-long Lunar New Year holiday on Wednesday also piled into the tech sector, boosting shares of firms in AI, semiconductors, big data and robotics. "2025 will witness an explosion of AI applications," said Zhou Yingbo, head of investment at Futures Vessel Capital. "We're very optimistic about opportunities created by this revolution," Zhou said, expecting widespread adoption of both AI hardware and software by consumers and businesses alike. Likely beneficiaries include Nancal Technology, Suzhou MedicalSystem Technology, Doctorglasses Chain, Bestechnic Shanghai and Ucap Cloud Information Technology, Huaxi Securities said. The DeepSeek development illustrates how the U.S. attempt to slow China's technological advancement "has backfired, instead accelerating Chinese AI innovation," TF Securities said in a client note. It called for a repricing of Chinese technology stocks which have underperformed U.S. peers in recent years amid increased regulatory scrutiny and geopolitical tension. The emergence of DeepSeek could prompt even tighter U.S. technology export restrictions but that will only invite more government support and turbo-charge growth, the brokerage said. Goldman Sachs expects Chinese breakthroughs in AI development and application "could materially alter" the stock market trajectory. The Wall Street bank estimates AI-enabled efficiency improvement could increase earnings by 2% for Chinese equities, while brighter growth prospects could lead to a 20% valuation uplift for Chinese firms, narrowing the gap with U.S. peers. China's "hard tech" stocks trade at a price representing 23.6 times earnings, while "soft tech" shares trade at 13.9. The price-to-earnings ratio of the biggest U.S. tech stocks, the so-called "Mag 7", is 31, showed the Goldman report dated Feb 4. DeepSeek has created such a buzz that Chinese companies up and down the AI value chain, from chipmakers to cloud service providers are exploring possibilities with the startup's low-cost services, including heavyweights such as Huawei Technologies, Alibaba and Baidu. Yi Xiangjun, partner of Shenzhen Black Stone Asset Management, said he is "all in" China's AI and tech stocks, betting large, successful companies will emerge in what he called an epoch-making revolution. However, Wang Zhuo, partner of Shanghai Zhuozhu Investment Management, was more cautious. "Many companies are still far way from generating profit from AI... As a value investor, I don't feel confident putting money into these stocks." (Reporting by Samuel Shen and Jiaxing Li; Editing by Vidya Ranganathan and Christopher Cushing)

DeepSeek Breakthrough Fuels Rally in Chinese Tech Stocks -- Update

A Nasdaq-like index for Chinese companies listed in Hong Kong has entered technical bull territory following robust gains by China's largest technology stocks that have added billions of dollars in market value, driven by the sudden rise to fame of homegrown AI app DeepSeek. The Hang Seng Tech Index, which tracks the 30 largest technology companies listed in the city, rose as much as 2.9% on Friday, reflecting a rise of more than 20% from its January low. The index is closing in on its 2024 high reached in October but is still far from the all-time high recorded in early 2021. PC maker Lenovo and smartphone specialist Xiaomi were among the top gainers, advancing as much as 9.2% and 6.2%, respectively. Software companies also jumped on hopes that incorporating DeepSeek's AI model into their offerings would fuel business growth. Enterprise software maker Kingdee jumped 14.5%. Chinese AI company DeepSeek emerged seemingly out of nowhere last month. DeepSeek has touted its latest AI model, R1, as being particularly good at problem solving, performing on par with OpenAI's o1 reasoning model but at a fraction of the cost per use. The optimism over China's AI development has largely helped its tech companies shrug off the impact of U.S. President Trump's additional 10% tariff on Chinese imports. "The global attention on DeepSeek can spur investors to reassess China's innovation capacity, and which in our view could be a rerating catalyst for the Chinese equity market this year," HSBC analysts said in a report. Several analysts have noted that in the field of AI, there has been a gradual shift toward software and application platforms from infrastructure and semiconductors. They think DeepSeek's low-cost yet powerful model and its open-source nature could accelerate AI adoption across various sectors in China, particularly benefiting businesses involved in cloud application software and AI technologies. In another note, HSBC called the DeepSeek breakthrough the "dawn of universal AI adoption." The integration of DeepSeek's model could improve software companies' research and design efficiency, saving costs and driving earnings growth in the medium term, it said. Citi said it sees the Chinese AI startup's cost-efficient model benefiting hardware companies too. DeepSeek could accelerate the generative AI implementation on edge devices, such as smartphones and smart glasses, it wrote in a note. DeepSeek's ascent has also raised security concerns in several countries. Australia and South Korea this week banned DeepSeek on government devices, citing security risks, while U.S. lawmakers plan to introduce a bill on Friday to ban the chatbot app as well.

DeepSeek's AI breakthrough could get global investors interested in China again

DeepSeek's rise is the catalyst that will prompt global investors to allocate more toward Chinese stocks, even as economic worries persist, analysts predict. "Before the overarching talk was, China is uninvestible. ... Now you definitely see people start thinking it probably helps to have China," said Liqian Ren, leader of quantitative investment at WisdomTree. It's a realization that "the macro environment can be still cool in China and you still see innovation," Ren said, adding she expects progress in the next few years in Chinese drug development and other areas. "DeepSeek is the tip of what's likely to come." The Chinese AI startup released an open-source model in January that surprised many U.S. tech investors with the ability to share its thought process and claims to undercut OpenAI drastically on costs -- despite U.S. export controls on advanced semiconductors. High-flying U.S. chip giant Nvidia plunged about 17% on Jan. 27 in its worst day since 2020 as global tech stocks dropped . The development "raises questions about the vast sums that are currently being invested in AI and whether it will turn out to be money well spent," David Chao global market strategist, Asia Pacific, ex-Japan, at Invesco, said in a Feb. 3 note. "I expect the current high concentration in the US stock market to be a temporary phenomenon." "I would just add that it favors an equally weighted approach to the US market, US small-mid caps over mega caps and Chinese equities vs US equities," he said. "Chinese equities, and especially Chinese technology companies are priced at a steep discount compared to their American counterparts, and similar to the AI development gap narrowing, so too is the valuation gap." DeepSeek shows how some Chinese tech giants can build AI models comparable to U.S. ones, "which can be tactically bullish for MSCI China on the back of subdued valuation, light positioning, and recovering earnings cycle," Louis Luo, head of multi-asset investment solutions, Greater China, abrdn, said in a Feb. 5 note. The MSCI China index includes Hong Kong and mainland-traded stocks. While DeepSeek is not publicly listed, investment analysts expect several Chinese stocks can benefit from local AI development. "Kingdee and Kingsoft Office remain our top names to gain exposure to the AI themes," Bernstein's Boris Van and Ting Ming Neo said in a Feb. 5 report. They expect Hong Kong-listed software company Kingdee can benefit due to its large base of small and medium-sized businesses, strong product positioning and subscription model. "The stock is well positioned for a macro recovery should private enterprise budgets resume later in the year, presenting upside to current estimates, with the AI story largely not yet priced in today," the Bernstein analysts said. They are more cautious in the near term about Shanghai-listed Kingsoft Office, operator of word-processing app WPS, due to uncertainty about how its enterprise AI business can succeed. "Long term AI winner but find the right entry point in 1H," the analysts said. They rate both stocks outperform. Within China stocks likely to benefit from rising AI adoption, J.P. Morgan China equity strategists also like Kingdee more than Kingsoft Office. "DeepSeek's low cost and quality AI data infrastructure should help raise the installation and revenue base for AI enabled software applications," they said in a Feb. 3 note. The firm highlighted Kingdee as a preferred pick. They pointed out that while businesses have not spent much on software due to slow growth, government offices in China have been digitizing data and processes to improve efficiency. The J.P. Morgan China strategists also expect increased availability of AI applications to encourage consumers to buy new smartphones more frequently. Among the publicly-traded Chinese players, they like Hong Kong-listed Xiaomi the best as they expect Lenovo will be more affected by tariffs. The team rates Xiaomi overweight. HSBC analysts on Feb. 6 raised their revenue estimates for Xiaomi partly on expectations of better smartphone and connected home appliance sales. They pointed out that Xiaomi has an in-house AI large model team and strategic cooperation with Kingsoft Cloud and AI startup MiniMax. "With the rise of low-cost models such as DeepSeek-R1 and the gradual maturity of AI computing infrastructures, we believe Xiaomi will benefit as one of the top global edge AI players," the HSBC analysts said, referring to on-device AI. More interest outside the state sector Chinese stocks still face U.S. tariff uncertainty, and questions remain about how quickly the world's second-largest economy can grow this year without sufficient support. WisdomTree's Ren cautioned that China investors might face "very painful" periods due to the barrage of headline-driven volatility. She added that new buyers are likely increasing their allocation from emerging markets rather than U.S. stocks. But there are other indications that the winds have shifted. Interest in China started to pick up after Beijing's stimulus announcements in late September, Ren pointed out. What's different now, she said, is that DeepSeek's latest artificial intelligence breakthroughs are showing innovation coming out of China's private, non-state owned sector. The WisdomTree China ex-State-Owned Enterprises Fund (CXSE) was up nearly 4% for the year as of Thursday's close. In contrast, a Bosera ETF for tracking high yielding state-owned enterprise stocks was down more than 3.5% over that time. That's after state-owned enterprises traded in mainland China outperformed non-state-owned ones for three straight years , according to Allianz Global Investors. -- CNBC's Michael Bloom contributed to this report.

Political economics of DeepSeek

By Peter S. Kim Peter S. Kim Over the Lunar New Year break, China ambushed global markets and claimed its place in the artificial intelligence (AI) universe by launching DeepSeek as its national champion to challenge U.S. dominance. The news immediately followed the inauguration of U.S. President Donald Trump, whose "America First" policies have centered around a trade war with China that was supposed to make it difficult to catch up to the U.S.' lead in technology. The timing of DeepSeek's proclamation to the world folds neatly into Chinese President Xi Jinping's "Made in China 2025." This grand plan aims to localize imports of critical components and materials by 70 percent this year. It is a politically powerful way for China to remind the world that it has not given up on the tech race, particularly AI. Besides the political points from the announcement, there are key investment implications from the emergence of China's latest disruptor, which comes with structural strengths and weaknesses that will have a lasting impact on investment in the ultraspeculative technology industry. For the past few years, OpenAI and other AI companies have established an unquestioned investor consensus that their business model justifies an almost unlimited need for capital, energy and Nvidia chips. The investment world acceded enthusiastically, betting the house that AI, led by U.S. innovation, will change the world and deserves investments of enormous valuation premiums. Now, the DeepSeek chatbot has shaken the financial world not just for its service quality but also due to its claim that it is multiple times more cost-efficient than its U.S. counterparts; apparently, its large language model process was achieved at a fraction of the cost, meaning a fraction of energy and Nvidia chips are required. How China caught up with technology that was supposedly unassailable for decades remains to be seen, but it's a safe bet that it involved a fair amount of "cutting corners." Additionally, China's state-backed support must be part of the explanation, given the country's obsession with using technology as the "equalizer" to catch up to U.S. economic dominance. The fast-follower business model is something we saw from the early stages of the industrial emergence of Japan and South Korea. China's model, however, is even more potent given that U.S. intellectual property laws have a limited impact on mainland China. While the political implications of DeepSeek are still too early to conclude, it is useful to remember that respect for intellectual property rights was one of the key criteria for China's admission into the World Trade Organization (WTO). Back then, the issue was centered around movies, music CDs and product designs. Since its WTO membership, China begrudgingly adhered to the West's request, but just barely enough to keep its membership intact. In that sense, the debate over DeepSeek as a business model and surrounding politics is not new. Now, however, the stakes are much higher as it involves technology that could define future world leadership and become a pivotal issue of U.S.-China tensions. Whether DeepSeek's claim that it is 10 times more cost and energy-efficient than its U.S. competition is true remains to be seen. For now, the validity of the claim is secondary to the investment ramifications. In the past, Chinese companies have used state-backed support to fight global incumbents on price to gain market share. Ultimately, China's support for AI technology will have a similarly disruptive impact on AI products by commoditizing the low to mid-end segment. A positive impact is that China's ability to subsidize and spend its way into AI technology will provide cost discipline for incumbents. For consumers, any disruption to a monopolistic structure is good news -- even if it is coming from China. A cost-effective, voluminous version is good for inflation and working-class consumers especially those from developing economies. In that sense, consumers should welcome DeepSeek's entry, especially cost-conscious users from emerging nations. However, it would be premature to assume that the AI boom is ending or that Nvidia as an investment theme is over. DeepSeek is structurally embedded with both weaknesses and strengths relative to U.S. peers. Consistent with fast copy models of the past, quality will remain inferior, albeit cheaper. More importantly, privacy and censorship concerns will be significant factors for developed nations to discount DeepSeek services. On the positive side, DeepSeek can go all out on innovation without being hampered by looming regulatory or ethical debates. With the backing of the Chinese government, DeepSeek (and other emerging disruptors) could get help not just from subsidies but also from regulatory backing, which could prove meaningful in the long run. There have already been abundant signs of frivolous capital allocation caused by AI fervor, as evidenced by the irreverent rush for talent, dizzying market valuations and investment boom in data centers. The valuation compression may be painful for investment in the short term, but DeepSeek's entry may prevent a much bigger bubble going forward by introducing investment discipline for all involved. Over the next four years, China will find it difficult to engage in a protracted trade war with the U.S. due to struggles with its domestic economy. Therefore, China's strategy could be to buy time by appeasing the Trump administration under the pretense of finding common ground. However, simply rolling over and conceding defeat to the U.S. would not be the negotiation strategy that will please Xi. DeepSeek not only saves face for Xi's "Made in China 2025" project but could also give China much-needed bargaining power to bring the U.S. to the negotiation table. Whether DeepSeek acts as a further wedge between the U.S. and China or as a bargaining chip to bring the two countries to a compromise will be a key question in the coming months. Peter S. Kim is managing director at the KB Financial Group. The views expressed in this article is his own.

Amid DeepSeek frenzy, Chinese companies detail use of AI

BEIJING, Feb 9 (Reuters) - Chinese automaker Great Wall Motor and China's leading telecoms providers are integrating the AI model released by DeepSeek into their offerings, the latest Chinese companies looking to capitalize on the start-up's breakthrough and attention. Hebei-based Great Wall (601633.SS), opens new tab - China's first listed car maker - confirmed to Reuters it had integrated DeepSeek into its connected vehicle system, which it has branded "Coffee Intelligence." State-run publication Securities Times first reported the Great Wall development on Sunday. Separately China's Ministry of Industry and Information Technology (MIIT) said on Saturday that the country's three largest telecom companies - China Mobile, China Unicom and China Telecom - were looking to "promote the inclusive application of the latest AI technology" and were working with the DeepSeek open source model. DeepSeek's AI platform, which threatens to upend the economics of a still-emerging industry, has spilled over into investor speculation about its potential positive effects on China's broader tech sector and to patriotic calls for an upward repricing of Chinese assets. Chinese investors have rushed into AI-related stocks, including Chinese chipmakers, software designers and data centre operators in recent days. On Sunday, two listed companies who had been touted by investors as potential beneficiaries of DeepSeek's lower-cost model cautioned investors their business outlook had not changed - even as Beijing celebrated the efforts of other big companies to integrate DeepSeek's AI platform. Beijing-based Capitalonline Data Service (300846.SZ), opens new tab, which provides cloud computing services, said in a statement to the Shenzhen stock exchange it had deployed the DeepSeek-R1 model. The company's shares jumped 49% between Wednesday and Friday last week. In its statement it said the business effect of the DeepSeek rollout and any impact on the company's future performance were both uncertain. Shenzhen-based MeiG Smart Technology company (002881.SZ), opens new tab, which provides wireless data terminals for IoT devices, said in its own statement to the Shenzhen exchange that it was working on the adaptation of DeepSeek-related models but remained in the early stages of that work. It said development work had not generated any new business. MeIG's shares jumped 33% from Wednesday to Friday. Other Chinese companies, including Tencent (0700.HK), opens new tab and Huawei (HWT.UL), have said in the last week that they have integrated DeepSeek's model into their own offerings. Reporting by Kevin Krolicki, Brenda Goh and Liangping Gao; Editing by David Holmes Our Standards: The Thomson Reuters Trust Principles., opens new tab Suggested Topics:Artificial IntelligenceADAS, AV & SafetySoftware-Defined Vehicle

DeepSeek rocked the market once and here's why it could happen again

The Chinese startup DeepSeek has the potential to impact the U.S. stock market significantly due to its promise of delivering cheaper, more energy-efficient artificial intelligence solutions. This was highlighted by Don Townswick, director of equity strategies at Conning Asset Management, which manages $170 billion in assets. Townswick noted that if DeepSeek's offerings prove to be credible and effective, it could facilitate the adoption of AI technologies across a wider array of companies, enhancing earnings through increased efficiencies. Conversely, if DeepSeek's claims are found to be less valid, established AI companies known as the "Magnificent Seven" may benefit instead. The launch of DeepSeek's chatbot in the U.S. earlier this month sent shockwaves through Wall Street, resulting in a $600 billion loss in stock value for Nvidia Corp., an AI chip developer. This incident has increased scrutiny on the massive investments being made by U.S. megacap tech firms into AI infrastructure. In response to this competitive landscape, U.S. tech companies have further intensified their spending on AI. 19 best-value tech stocks to watch in February 2025 Meta CEO Mark Zuckerberg recently announced plans to invest "hundreds of billions of dollars" in AI infrastructure over the coming years, having already committed $60 billion to $65 billion for this year. Additionally, Alphabet Inc. projects $75 billion in capital expenditures for 2025, surpassing Wall Street's expectations. Microsoft reported a 95% increase in its cloud and AI spending, amounting to $22.6 billion in its fiscal second quarter. Robert Pavlik, senior portfolio manager at Dakota Wealth Management, emphasized concerns regarding the relentless climbing of capital expenditures. He questioned how much more investment is necessary before these expenditures begin to decline. While Nvidia shares saw a rise due to fresh commitments in AI spending, Tesla, Apple, and Amazon stocks exhibited declines, possibly influenced by concerns surrounding President Trump's trade policies. The U.S. has recently implemented a 10% tariff on goods from China, and has threatened additional tariffs on Canada and Mexico. Investors have also begun to rotate their focus toward defensive and rate-sensitive market sectors amid concerns facing tech stocks. Garrett Melson, portfolio strategist at Natixis Investment Managers, indicated that there has been a shift, highlighting improvements in these alternative sectors despite the pressure on tech stocks. Townswick noted that the growth rate for the "Magnificent Seven" has been declining, having peaked at a 61% yearly rate in Q4 2023. He forecasts this rate to normalize between 16% and 18% by the year's end, a figure closer to the overall growth rate expected for the remaining S&P 500 companies, making their high valuations harder to justify. According to Market Watch, Keith Lerner, chief market strategist at Truist Advisory Services, indicated that the combination of DeepSeek's impact and turbulent trade policies could lead to more volatility in the market. Lerner advised against hastily buying into the market following the recent dips driven by these developments. He pointed out that historical trends show a typical intra-year pullback of around 14% and highlighted that the U.S. economy is expected to remain strong into 2025. Lerner further noted a resurgence across 10 of the 11 large-cap sectors this year and anticipates that earnings will surpass expectations, with 79% of S&P 500 companies beating consensus earnings estimates by an average of 6%. He prefers large-cap stocks due to their stronger financial positions and believes that midcap stocks also present a favorable investment opportunity. In technology news, Alphabet's stock is declining following a revenue miss coupled with ambitious spending plans for AI. Shares of AMD are also down due to a discouraging outlook for its data center business, as the company has ceased providing forecasts on AI revenue. Meanwhile, Mattel's stock is rising following positive profit projections related to Barbie, while Chipotle has faced challenges due to a disappointing sales forecast. Upcoming earnings reports are expected from Disney and Uber, with Ford and Costco results anticipated later in the day. This week, the U.S. Postal Service announced it will stop accepting parcels from China, impacting shares for both Amazon and Temu. Economic data releases, including the private-sector payroll report and the U.S. trade deficit, are scheduled for later today, accompanied by remarks from several Federal Reserve officials. Disclaimer: The content of this article is for informational purposes only and should not be construed as investment advice. We do not endorse any specific investment strategies or make recommendations regarding the purchase or sale of any securities.

DeepSeek Breakthrough Fuels Rally in Chinese Tech Stocks

Hong Kong's Hang Seng Tech Index has entered technical bull territory following robust gains by Chinese tech stocks that have added billions of dollars in market capitalization, driven by the sudden rise to fame by homegrown AI app DeepSeek. The Hang Seng Tech Index was last up 2.8% at 5200.57 at midday on Friday, rising over 20% from a January low. Hardware makers Lenovo Group and Xiaomi were among the top gainers in Hong Kong, rising 5.8% and 7.5%, respectively. Software companies rose sharply on hopes of incorporating DeepSeek's AI model to fuel their businesses. Enterprise software maker Kingdee International Software Group jumped 20%. Chinese AI company DeepSeek emerged seemingly out of nowhere last month. Analysts believe DeepSeek's low-cost yet powerful model and its open-source nature could accelerate AI adoption across various sectors in China, particularly benefiting businesses involved in cloud application software and AI technologies. Australia and South Korea have recently banned DeepSeek on government devices, citing security risks, while U.S. lawmakers plan to introduce a bill Friday to ban the chatbot app as well.

DeepSeek shock fires up bullish bets on cheap China tech stocks

China's growing clout in the artificial intelligence space has sparked a wave of optimism toward the nation's tech shares, with a gauge entering a bull market and brokers issuing upbeat calls. The Hang Seng Tech Index climbed 1.8% on Friday to take its gains from a January low to over 20%. Xiaomi Corp. and Alibaba Group Holding Ltd., which have the biggest weighting on the gauge, each rallied almost 30% during that period. Both are viewed as beneficiaries of AI advancement. Chinese startup DeepSeek's AI model is being hailed as a game-changer for the tech industry, highlighting the nation's innovative capabilities. It's also prompting a broader re-evaluation of the nation's beaten-down shares, just as the market was caught in the crosshairs of a tariff war following Donald Trump's return to the White House. "This is a sector that has been ignored but like other purely domestic sectors, there are some bright spots," said Sat Duhra, portfolio manager at Janus Henderson Investors in Singapore. "The recent DeepSeek announcement is a timely reminder that behind the scenes, industrial policy -- for example Made in China 2025 -- has pushed many sectors toward world-class status." Alibaba's shares have also been buoyed by the company's assessment that its new AI model scored better than Meta Platforms' Llama and DeepSeek's V3 in various tests. It's a rare moment of victory led by the private sector, after the Chinese market has been bogged down for years by government regulations and policy uncertainties. Wall Street brokers are upbeat, arguing that the Chinese discount will vanish as gauges top prior highs due to manufacturing strength and tech competence. DeepSeek emerged as a formidable challenger to global AI leaders after it unveiled an app developed at a fraction of the cost that rivals spent to build their products, even amid curbs on imports of the most cutting-edge chips to China. "We think 2025 is the year the investing world realizes China is outcompeting the rest of the world," Deutsche Bank analyst Peter Milliken wrote in a Feb. 5 report entitled "China Eats The World." The note went viral on the Chinese internet search engine, with the local investment community applauding the upbeat comments. "Investors we believe will have to pivot sharply to China in the medium term, and will struggle to get access to its stocks without bidding them up," Milliken wrote. Deutsche Bank Says Investors Will Flood Into Chinese Stocks Soon HSBC said the valuation gap between China and emerging markets may narrow, as foreign fund inflows pick up amid a growing awareness of the nation's technological prowess. "In addition, A-share tech companies may also benefit from policy support," Steven Sun, head of research at HSBC Qianhai Securities Ltd., wrote in a Feb. 6 note. "The missing link is that innovation in China has yet to be translated into higher profitability, which can only be solved through demand-side stimulus." The positive tone stands in contrast to the bearishness that has weighed on Chinese equities in recent years as investors contend with a property-sector slump and lackluster economic data. Washington's recent decision to slap a 10% tariff on China's goods had added to the headwinds. Southbound flows edged higher in January as onshore investors piled into Hong Kong's tech shares and the trend may persist due to AI tailwinds, Bloomberg Intelligence strategist Marvin Chen wrote in a note. Favorable valuations have also helped to reinforce the upbeat sentiment. The HSTECH index is trading at 17 times forward earnings estimates, compared with 27 times for the Nasdaq 100 Index, according to data compiled by Bloomberg. To be sure, Morgan Stanley strategists reiterated their cautious stance on China's semiconductors and hardware stocks in a note dated Feb. 1, citing broader tariff and other risks. These include the possibility that the US may expand curbs on advanced chip sales to Beijing. Despite the latest rally, the HSTECH gauge is still more than 50% below a peak reached in early 2021. In addition, Morgan Stanley said foreign funds probably withdrew $2.4 billion from Chinese stocks in January although the pace of decline was likely slower than the previous month's.

Everything We Know So Far About DeepSeek | The Motley Fool

DeepSeek brings risk, yes. But it also brings a tremendous opportunity for investors. China shocked the tech world when AI start-up DeepSeek released a new large language model (LLM) boasting performance on par with ChatGPT's -- at a fraction of the price. Here's what you need to know. DeepSeek is a fairly new Chinese artificial intelligence (AI) company. Beginning as part of Liang Wenfeng's quantitative hedge fund, High-Flyer, DeepSeek acquired 10,000 Nvidia (NVDA 5.21%) A100 chips in 2021 and began training an LLM. DeepSeek set up shop independently in 2023, according to data from S&P Global Market Intelligence. By November of last year, DeepSeek was ready to preview its latest LLM, which performed similarly to LLMs from OpenAI, Anthropic, Elon Musk's X, Meta Platforms, and Google parent Alphabet. This open-source model, R1, specializes in solving complex math and coding problems. DeepSeek released another model, V3, in December. When people talk about DeepSeek today, it's these LLMs they're referring to. The cost is what's different. Western companies have spent billions to develop LLMs, but DeepSeek claims to have trained its for just $5.6 million, on a cluster of just 2,048 Nvidia H800 chips. And DeepSeek completed training in days rather than months. DeepSeek invented new tricks to cut costs, accelerate training, and work around its limited access to Nvidia chips. The company omitted supervised (i.e., human) "fine-tuning," for example, a process in which a pre-trained LLM is fed additional data to help it better answer specific kinds of questions. It hired new engineering graduates to develop its model, rather than more experienced (and expensive) software engineers. Crucially, DeepSeek took a novel approach to answering questions. Instead of searching all of human knowledge for an answer, the LLM restricts its search to data about the subject in question -- the data most likely to contain the answer. The Wall Street Journal explains it this way: Imagine the earlier versions of ChatGPT as a librarian who has read all the books in the library. ... When asked a question, it gives an answer based on the many books it has read. This process is time-consuming and expensive. It takes electricity-hungry computer chips to read those books. DeepSeek took another approach. Its librarian hasn't read all the books but is trained to hunt out the right book for the answer after it is asked a question. All of this should add up to a cheaper LLM, one that requires fewer chips to train. Yet the sheer size of the cost differential has conspiracy theories flourishing. DeepSeek may have only a few thousand chips at its disposal, but did it perhaps access computing power from sources it doesn't control -- like the Chinese government? Or perhaps DeepSeek has more chips than it's admitted to. Or -- here's the latest theory -- DeepSeek may have piggybacked on other AIs to develop its LLM. OpenAI says it sees "indications" that DeepSeek "extricated large volumes of data from OpenAI's tools to help develop its technology, using a process called distillation" -- in violation of OpenAI's terms of service. Supporting this theory, when DeepSeek answers certain queries, it refers to itself as ChatGPT. The U.S. government recently announced the launch of Project Stargate, a $500 billion initiative, in cooperation with OpenAI, Oracle, and Japan's SoftBank. The initiative's purpose is to turbocharge AI infrastructure in the U.S. But the announcement was made before DeepSeek crashed onto the stage and wiped out $1 trillion in market capitalization from U.S. AI and AI infrastructure stocks. Many investors now worry that Stargate will be throwing good money after bad and that DeepSeek has rendered all Western AI obsolete. I think that's a bit of an overreaction. Consider that Sam Altman, the CEO of OpenAI, which is now DeepSeek's biggest competitor, called DeepSeek "impressive" last week and expressed excitement at the prospect of competing with a worthy opponent. Nvidia hailed DeepSeek's "excellent AI advancement." U.S. AI companies aren't going to simply throw in the towel now that China has built a cheaper mousetrap -- especially when that mousetrap is open-source. They're going to reevaluate how they do AI, retool their approach, and improve how they use their vastly greater access to high-powered AI semiconductor chips. I expect this to lower the cost of AI in general. And as we've seen throughout history -- with semiconductor chips, with broadband internet, with mobile phones -- whenever something gets cheaper, people buy more of it, use it more, discover more uses for it, and then buy even more of it. (Tech investors call this the Jevons paradox after 19th-century English economist William Stanley Jevons, who observed this relationship between falling cost and rising usage with regard to coal.) The same will be true for AI. U.S. artificial intelligence companies will improve with greater competition from DeepSeek. Nvidia will continue selling lots of computer chips as new uses are discovered for cheaper AI. Power companies will continue opening nuclear plants to power all these uses.

DeepSeek's AI Model Drives Surge In Chinese Tech Stocks, Closing Gap With US 'Magnificent Seven' - Apple (NASDAQ:AAPL), Amazon.com (NASDAQ:AMZN)

Chinese technology stocks are witnessing a surge, spearheaded by DeepSeek, thereby closing the valuation gap with the U.S. 'Magnificent Seven.' What Happened: The Hang Seng Tech Index, which includes major players like Tencent Holdings TCEHY, Alibaba Group Holding BABA and Xiaomi, neared a four-month high after rallying over 10% in the past two weeks. At the same time, the broader Hang Seng Index climbed about 6%. According to Bloomberg data, the 30 companies in the Hang Seng Tech Index had an average price-to-earnings ratio of 20.5 times. In comparison, the Mag. 7 giants -- Apple AAPL, Microsoft MSFT, Amazon AMZN, Alphabet GOOG GOOGL, Meta Platforms META, Nvidia NVDA, and Tesla TSLA -- traded at an average of 41.4 times. Alibaba's stock price doubled during the same period after its cloud computing division integrated DeepSeek's AI model into its offerings. At the same time, Xiaomi's market value surpassed HK$1 trillion ($128.4 billion). Investors also made significant investments in Shenzhen-based data service provider Merit Interactive, leading to a 20% daily-limit increase since China's onshore markets reopened after the Lunar New Year holiday, reported the South China Morning Post on Thursday. This rebound may indicate a change in the sentiment of the tech sector, which has been impacted by weak spending and increased scrutiny of fintech practices over the past four years. Some investors think the current rise in Chinese tech stocks could persist, driven by their attractive valuations and innovation, even with ongoing U.S. restrictions. "Chinese equities, and especially technology companies, are priced at a steep discount compared to their American counterparts," a strategist at US money manager Invesco, David Chao, told the publication. "Similar to the AI development gap narrowing, so too is the [stock] valuation gap." SEE ALSO: Cathie Wood Sells Palantir Shares As Rally Cools Down, Ark Invest Also Dumps Nearly $7 Million Worth Of Robinhood Stock Why It Matters: The surge in Chinese tech stocks comes in the wake of concerns raised by billionaire Ray Dalio about valuation dynamics in the tech sector, particularly in the context of artificial intelligence and global economic shifts. Dalio's comments were made as companies like DeepSeek began to make significant waves in the tech sector. Moreover, Warren Buffett has been reportedly reducing his holdings in growth-focused tech stocks in search of better valuations in other sectors. Furthermore, a recent Benzinga reader poll questioned the valuations of artificial intelligence companies with the surge of interest in DeepSeek, hinting at potential impacts on the 'Magnificent Seven stocks. Even President Donald Trump describes the rise of DeepSeek as a "wake-up call" in light of concerns over the long-term viability of the Western artificial intelligence boom. On the day of the launch of the Chinese AI chatbot DeepSeek, NASDAQ dropped 3%, while Nvidia stock plummeted 17% on a single day, marking the biggest fall in U.S. stock market history. READ MORE: This Analyst With 85% Accuracy Rate Sees More Than 8% Upside In Tesla - Here Are 5 Stock Picks For January From Wall Street's Most Accurate Analysts Image via Shutterstock Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors. AAPLApple Inc$232.10-0.16%Overview Rating:Good75%Technicals Analysis1000100Financials Analysis600100WatchlistOverviewAMZNAmazon.com Inc$237.910.74%BABAAlibaba Group Holding Ltd$101.201.93%GOOGAlphabet Inc$193.660.19%GOOGLAlphabet Inc$191.680.18%METAMeta Platforms Inc$708.410.50%MSFTMicrosoft Corp$414.600.32%NVDANVIDIA Corp$126.000.94%TCEHYTencent Holdings Ltd$53.62-0.02%TSLATesla Inc$376.77-0.37%Market News and Data brought to you by Benzinga APIs

Dan Ives Just Called DeepSeek the "Temu of AI." Here's What That Means, and Why I Think He's Right. | The Motley Fool

Research analyst Dan Ives just compared DeepSeek's AI model to Chinese online retailer Temu. For the last couple of days, it's been nearly impossible to tune into financial news programming and not hear about Chinese artificial intelligence (AI) start-up DeepSeek. While reporting on the DeepSeek story is fluid, initial claims from the company are that engineers built the AI model using Nvidia (NVDA -2.84%) A100 and H800 graphics processing units (GPUs). These are Nvidia's older and allegedly less capable chipsets. Given the impressive feats demonstrated by DeepSeek so far, some investors have turned bearish overnight, calling into question the necessity of Nvidia's next-generation and more sophisticated architectures. One voice of reason I tend to follow closely on Wall Street is technology analyst Dan Ives of Wedbush Securities. Recently, Ives posted on social media that DeepSeek is the "Temu of AI" -- a nod to Chinese e-commerce marketplace Temu. Comparing DeepSeek to Temu just because they are both products from China isn't the point Ives is making. Below, I'll explore his commentary and explain why I think he's making an apt comparison. Temu is owned by Chinese e-commerce business PDD Holdings. When it first launched in late 2022, some Wall Street skeptics began declaring the low-cost marketplace an existential threat to Amazon. The table below shows Amazon's online sales growth over the last couple of years: Data source: Investor Relations. While Amazon's e-commerce sales witnessed a nominal decline in 2022, this was not because of Temu. Remember, 2022 was when inflation peaked around 9%, and the Federal Reserve was amid aggressive interest rate hikes. The combination of historically high levels of inflation and rising borrowing costs served as a one-two punch to purchasing power for the average consumer. Amazon's e-commerce business experienced a resilient comeback in 2023, and published results for 2024 have been encouraging -- the company's online sales are up 6% year over year through September. My interpretation of Ives' words is that DeepSeek does not represent a doomsday situation for existing (and expensive) models from OpenAI, Perplexity, or Anthropic, among others -- just as Temu hasn't destroyed Amazon's e-commerce dominance. I often encourage investors to zoom out and consider the big picture whenever a new megatrend or breaking story is developing. In the case of Temu and Amazon, consider the idea that the addressable market for e-commerce is expanding. According to Grand View Research, the global market size for e-commerce was estimated to be worth $25.9 trillion in 2023 and forecasted to grow at a compound annual growth rate (CAGR) of 19% between 2024 and 2030. Given the rapid expansion of e-commerce adoption, it's natural that new entrants, such as Temu, would emerge. In other words, there is more than enough room for multiple competitors. On top of that, I'd argue that one of the key reasons Amazon is still able to generate meaningful growth from its online business despite its massive scale is the sticky nature of the company's ecosystem. Amazon offers far more than online shopping. The company provides grocery delivery, streaming and entertainment, and much more through its Prime subscription model. This is actually quite lucrative as Amazon has unlocked multiple streams to generate revenue from its customer base, keeping them fiercely loyal in the process. I think these same dynamics can be said about AI. Like e-commerce, AI is a growing market with a multitude of applications across both hardware and software. Moreover, Nvidia has also identified multiple ways to generate value from its enterprise customers -- selling them GPU hardware and accompanying software, known as compute unified device architecture (CUDA). To me, the introduction of DeepSeek really proves only one thing: There's room for more than one large language model (LLM) in the AI arena. Even if DeepSeek is as capable or superior to existing infrastructure, I think it's highly unlikely that developers and large enterprises will transition their AI workloads off of OpenAI and other legacy LLMs and begin adopting DeepSeek. Such an idea is much easier said than done, and it would be a costly endeavor to essentially ditch your existing framework in lieu of something else. At the end of the day, I do not think DeepSeek is an existential threat to ChatGPT, Nvidia, or any other hyperscaler pushing the AI narrative forward.

DeepSeek, Nvidia and the AI race that's shaping the future

The AI revolution is well underway and two companies -- DeepSeek and Nvidia -- stand out among those competing to lead it. Outside the financial world, the story might seem distant -- but it really does have consequences for everyone. It comes down to why investors are paying so much attention to AI, and how this competition could affect the technology we use daily. Developments in AI investment will shape the capabilities of the next generation of apps, smart assistants, self-driving technology and business practices. DeepSeek, the new player on the scene, is a Chinese company that has been making huge waves in AI development. Its powerful technology could change things such as health care, finance -- and even the way we interact with the internet. Investors are excited because they see DeepSeek as a potential leader in shaping the next generation of AI tools. Meanwhile, Nvidia has long been a giant in AI hardware, producing the graphics processing units (GPUs, or chips) that power many AI applications. However, the rise of DeepSeek has made some investors rethink their bets, leading to a sell-off in Nvidia shares, and wiping almost US$300 billion (£242 billion) off the company's value. Why does this matter? To put it simply, the AI race isn't just about corporate profits. The technology developed by companies such as DeepSeek and Nvidia is what powers voice assistants, recommendation systems on streaming platforms, self-driving car software and even medical breakthroughs. As investment flows into AI, it means that innovation could become more advanced and accessible -- much faster than we previously expected. When investors hear about a new company like DeepSeek making big advances, they often react by shifting their investments. This is what happened with Nvidia. Some investors sold their shares, fearing that DeepSeek might take away some of Nvidia's dominance in AI. This does not necessarily mean the company is struggling -- only that markets move based on expectations, rather than just current success. Speculation -- where investors accept uncertainty and high risks in return for potentially big returns -- plays a key role in these shifts. Investors do not always wait for solid proof that a company will succeed, instead they often act based on excitement, predictions or just fear of missing out. This can cause rapid changes in stock prices, even before new technology is widely available. Speculation can sometimes lead to instability, but it also helps to drive innovation. When investors put money into AI companies, it allows those companies to develop technology that could improve people's daily lives. This has happened before -- during the dotcom boom of the 1990s, investment rushed into internet startups. While many companies failed, others like Amazon and Google became global leaders. Similarly, cryptocurrency investment surged in the past decade. While the hype led to many failures, blockchain technology -- one of its key innovations -- has since become a major part of modern finance and security systems. Is it a bubble? With so much excitement around AI, some experts worry that the industry is experiencing a speculative bubble. A bubble happens when investors pour money into a sector too quickly, driving up prices beyond their real value. This happened in the early 2000s with the dotcom crash that followed the boom years of the previous decade. Many internet companies received huge investments, but when they failed to deliver on their promises markets crashed. Could the same happen with AI? It's possible -- but unlike some past bubbles, AI is already being widely used in everyday life. The key question is not whether AI is important, but whether current investments reflect realistic long-term growth or over-optimistic speculation. The sell-off of Nvidia shares does not necessarily mean it is losing its place in AI. Instead, it could reflect investors trying to hedge their bets, moving some of their money to newer companies such as DeepSeek while still keeping Nvidia in their portfolios. In other words, investors are looking into the potential "next big thing" (Chinese e-commerce giant Alibaba, for example, is touting a new AI model that claims to be superior to those of DeepSeek and Meta). Savvy investors often shop around like this to spread risk to avoid relying too much on a single company to bring them returns. Beyond Nvidia and DeepSeek, there is a larger global race for AI dominance. Countries, including the United States, China and some European states, are investing heavily in AI research because they recognize how much power and influence this technology could bring. Governments are funding AI initiatives, and businesses are pouring resources into being the first to create groundbreaking AI systems. But while speculation and innovation drive growth, regulation is needed to prevent market and financial instability. The history of economic crashes shows that unchecked hype can lead to over-investment and eventual collapse. Regulators need to ensure that AI companies and investors operate responsibly, balancing growth with stability. For example, regulators should provide clear AI investment guidelines, endorse transparency around the financial risks of investing, and be on the lookout for possible AI investment bubbles. Importantly, they should also introduce consumer protection policies to shield retail (non-professional) investors. And they should encourage international cooperation around regulation, working towards common principles. The battle between DeepSeek and Nvidia is a sign of how AI is transforming the world. Investors, regulators and everyday consumers all have a stake in how this technology develops. While financial speculation can be unpredictable, it is also one of the driving forces behind the innovation that's shaping the future.

DeepSeek's AI Shockwave Hits NVIDIA Hard, Wiping Out Billions

While DeepSeek's rise poses challenges, AI remains a booming industry, with major U.S. tech and defense firms doubling down on AI infrastructure, signaling strong long-term growth potential. The artificial intelligence (AI) revolution is moving at lightning speed, and one of the biggest stories from last week underscores just how critical the technology has become -- not just for Silicon Valley, but for America's national security and global competitiveness. Frank Holmes is a Canadian-American investor, venture capitalist and philanthropist. He is CEO and chief investment officer of U.S. Global Investors, a publicly traded investment company based in San Antonio, TX, that oversees more than $4 billion in assets (Nasdaq: GROW). He is known for his expertise in gold and precious metals and launching unique investment products. Holmes also serves as executive chairman of HIVE Blockchain Technologies, the first publicly traded cryptocurrency mining company (TSX.V: HIVE). Analyst's Disclosure: I/we have a beneficial long position in the shares of NVDA, MSFT either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

DeepSeek Just Exposed the Biggest Flaw of the Artificial Intelligence (AI) Revolution | The Motley Fool

For more than two years, Wall Street has been virtually unstoppable. The Dow Jones Industrial Average, S&P 500, and Nasdaq Composite have all recently rocketed to record-closing highs and surpassed psychologically important values of 45,000 for the Dow, 6,000 for the S&P 500, and 20,000 for the Nasdaq Composite. Although the most recent leg higher in equities was driven by Donald Trump's Election Night victory, the foundational catalyst that's fueling this upside is the rise of artificial intelligence (AI). With AI, software and systems are being empowered to reason, act, and evolve, all without the need for human intervention. The capacity for software and systems to become more proficient at their assigned tasks over time, as well as learn new skills, gives this technology a seemingly limitless long-term ceiling. However, Wall Street's DeepSeek scare from last week exposed what's arguably the biggest flaw of the AI revolution. Before digging into what riled investors and how the hottest trend on Wall Street may be upended, it's important to understand how this technology has been a catalyst for America's most-influential businesses. For instance, Nvidia (NVDA -2.84%) was a $360 billion company when the curtain opened in 2023. Less than two years later, its valuation would peak around $3.7 trillion. This parabolic ascent, which had never been witnessed for a market-leading business, is solely the result of Nvidia's graphics processing units (GPUs) becoming a staple in high-compute data centers. Orders for Nvidia's Hopper (H100) and successor Blackwell GPUs are backlogged, and no other AI-accelerating GPUs are particularly close to matching the computing speed of these chips. This combination of overwhelming demand and AI-GPU scarcity has afforded Nvidia exceptional pricing power and lifted its gross margin into the stratosphere. It's somewhat of a similar story for Broadcom (AVGO -1.60%), which recently became only the 10th public company traded on U.S. exchanges to reach a nominal $1 trillion market cap. Broadcom's AI networking solutions are the preferred choice by businesses to maximize the computing potential of their GPUs and (most importantly!) to reduce tail latency. Minimizing lag is a must when split-second decisions are being made by AI software and systems. Broadcom CEO Hock Tan believes its custom AI chips and other networking solutions should lead to between $60 billion and $90 billion in aggregate orders from its top three hyperscaler customers over the next three years. AI application companies are benefiting, too. "Magnificent Seven" giants like Microsoft, Amazon, and Alphabet are spending tens of billons of dollars on the necessary hardware to power their AI data centers. All three are leading cloud infrastructure service providers, with their AI investments allowing users access to generative AI solutions. While investors entered 2025 with high hopes for the AI revolution, the emergence of DeepSeek may have permanently derailed those short-term expectations. Roughly two weeks ago, China-based DeepSeek unveiled its open-source large language model (LLM), known as DeepSeek-R1, which is similar to ChatGPT, the chatbot developed by OpenAI that effectively sparked AI euphoria in late 2022. Though there are other chatbots available beyond ChatGPT, DeepSeek claims it was able to train its LLM using slower Nvidia chips and for a fraction of the cost than what the Magnificent Seven companies are spending on their AI-accelerated data centers. The steep sell-off in AI stocks on Jan. 27, which saw Nvidia set the record for the largest nominal decline in market cap for a single session ($593 billion), had investors questioning whether Nvidia's and Broadcom's AI product demand could take a hit. However, this reaction overlooks the root flaw with the artificial intelligence revolution, which is a persistent overestimation of AI adoption rates and early stage utility. There's no denying that businesses are spending a small fortune building out their AI data centers. Microsoft plans to spend $80 billion in fiscal 2025 to "build out AI-enabled data centers to train AI models and deploy AI and cloud-based applications around the world." But there's a big difference between spending big on a next-big-thing technology and getting returns on those investments. The overwhelming majority of businesses lack clear game plans for how they're going monetize AI and generate a positive return on their sizable investments. What DeepSeek exposed is the reality that most companies have no idea how to optimize their AI hardware and/or solutions, or what optimization might actually mean in terms of sales growth and profitability. The silver lining is that AI advances do point to a very large addressable market in the decades to come. This is a technology that offers utility in most industries around the globe. But all game-changing technologies need an adequate amount of time to mature. It took close to a decade after the initial proliferation of the internet before dot-com companies began optimizing this technology. To expect companies to optimize AI hardware/software and generate a positive return on their investments in just two years isn't realistic. We've also witnessed every next-big-thing innovation since (and including) the advent of the internet navigate its way through an early stage bubble-bursting event. DeepSeek serves as a reminder that AI is unlikely to be the exception to this unwritten rule. Once lofty investor expectations aren't met, premium valuations could quickly deflate in the AI arena.

Should Investors Change Their Artificial Intelligence (AI) Investment Strategy After the DeepSeek Launch? | The Motley Fool

Artificial intelligence (AI) has been center stage for the past few years and has driven recent gains in the stock market. Eight out of the nine most valuable companies in the world are directly or indirectly investing in AI programs, and these companies also account for a large amount of the S&P 500, which is a weighted index. Although the index has 504 components at the moment, more than 30% is in information technology stocks. Apple, Microsoft, Nvidia (NVDA 5.21%), Amazon, and Meta Platforms are the five largest components. That means even if you're completely invested in the S&P 500, with no further diversification, you are well exposed to trends in AI. Many investors have taken that a step further and are invested in single stocks that create or harness generative AI technology. Nvidia and Palantir are two examples of AI stocks that have soared over the past two years -- 500% and 1,200%, respectively -- and investors who were prescient enough to see their potential have benefited enormously. But as AI stocks balloon in value, are investors putting too much confidence in their chances? Investors see a huge opportunity in AI, and the repercussions of the advent of generative AI could far exceed what anyone thinks today. Bain & Company estimates an addressable market of nearly $1 trillion by 2027, but when you consider how generative AI, and specifically agentic AI, can take over many of the processes that people take care of today, it could be worth trillions to businesses. However, since it's so new and still in the development phase, it's complicated to make any real guesses as to where it's going to go. DeepSeek's introduction made a splash last week precisely because no one was expecting it. Does DeepSeek poke a hole into the AI investment thesis? Let's see why it could and how investors should react. AI is the latest trend to capture market attention, but it's hardly the first. Investors tend to jump on the bandwagon when a new trend becomes popular and entices them with the prospect of making easy millions. Remember non-fungible tokens (NFT)? Many words have already been written about how AI could change the world. DeepSeek didn't come out of nowhere last week, but it could compete with or even surpass ChatGPT and similar generative AI apps at a supposedly lower cost. This news demonstrated that AI is changing fast. The future may be bright, but it's unclear. DeepSeek and what it represents may make AI more prevalent in usage, but it could also make it much cheaper to run. AI could still play a huge role in business and the economy, but since it's all still unknown, investors should be very careful about allocating too much of their funds to AI stocks. I don't recommend staying away altogether. By all means, determine which AI stocks are excellent businesses that fit your investment thesis and needs, and invest prudently. A lot of the discussion over the past week has been regarding Nvidia. Nvidia designs the chips that make generative AI work, and the companies developing the most competitive and useful large language models (LLMS) need Nvidia's most expensive chips to train their data. DeepSeek only has access to some of Nvidia's older and less expensive chips and was still able to produce a competitive product -- or so it says. Nvidia stock fell after the news and remains down 16%. Yet, CEO Jensen Huang released a statement saying that "DeepSeek is an excellent AI advancement," and most of the investing community hasn't fallen out of love with Nvidia. It's still the leader in the space and has many products that drive innovation in AI and other industries. Huang's confidence is well placed even if DeepSeek's contention is true. So, the dip in Nvidia's price could be the opportunity investors have been waiting for. Revenue increased 94% year over year in the third quarter, and profit margins are still expanding. It's still driving incredible momentum in AI across platforms and regions, and shows no signs of slowing down. Whether you invest in Nvidia or any other single AI stock, it should be one piece of a much broader investment strategy. In fact, investors who were lucky enough to buy Nvidia stock before it recently took off might have already sold some of their stock before the dip last week to make sure their fund allocation matches their investment strategy. If you're looking for a safer way to invest in AI, you might want to consider investing in an exchange-traded fund (ETF) like the Invesco QQQ ETF (QQQ 0.45%) or the Vanguard Information Technology ETF (VGT 1.41%). Both of these ETFs offer broad exposure to trends in technology, which today are highly associated with AI. But they also provide greater security because they're diversified among a large assortment of stocks -- 100 for the Invesco ETF, which tracks the Nasdaq-100, and 316 for the Vanguard ETF. They have also outperformed the S&P 500 over many years. And most importantly, make sure your AI positions are only a component of a fully diversified portfolio that includes a broad range of categories.