DeepSeek's AI Breakthrough Reshapes Tech Landscape: Software Stocks Rise as Hardware Giants Stumble

Market Experts Take A Deep Dive Into DeepSeek

Before COVID, the S&P 500 Index's composition was drastically different than it is today. With the rise of mega-cap technology names, this has changed. Chinese artificial intelligence start-up DeepSeek shocked markets with its release of an AI model that it said had been developed for a fraction of the cost of the industry-leading models in the US. The market's volatile reaction was exemplified Invesco is an independent investment management firm dedicated to delivering an investment experience that helps people get more out of life.Be the first to know! Sign up for Invesco US Blog and get expert investment views as they post.Disclosure for all Invesco US articles: Before investing, carefully read the prospectus and/or summary prospectus and carefully consider the investment objectives, risks, charges and expenses. The information provided is for educational purposes only and does not constitute a recommendation of the suitability of any investment strategy for a particular investor. Invesco does not provide tax advice. The tax information contained herein is general and is not exhaustive by nature. Federal and state tax laws are complex and constantly changing. Investors should always consult their own legal or tax professional for information concerning their individual situation. The opinions expressed are those of the authors, are based on current market conditions and are subject to change without notice. These opinions may differ from those of other Invesco investment professionals. NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE All data provided by Invesco unless otherwise noted. Invesco Distributors, Inc. is the US distributor for Invesco Ltd.'s retail products and collective trust funds. Invesco Advisers, Inc. and other affiliated investment advisers mentioned provide investment advisory services and do not sell securities. Invesco Unit Investment Trusts are distributed by the sponsor, Invesco Capital Markets, Inc., and broker-dealers including Invesco Distributors, Inc. PowerShares® is a registered trademark of Invesco PowerShares Capital Management LLC (Invesco PowerShares). Each entity is an indirect, wholly owned subsidiary of Invesco Ltd. ©2015 Invesco Ltd. All rights reserved.

Software Stocks In Vogue Again on DeepSeek's Efficiency Promise

DeepSeek's claim that it has found a lower cost way to create AI models has made software stocks a hot trade. The sudden emergence of DeepSeek's model at first sent stocks with deep ties to the AI revolution into a nose dive on concerns that efficiency improvements could lead to reduced hardware spending. Semiconductor and other AI infrastructure-related stocks tumbled on Monday. The Nasdaq 100 sank 3% and Nvidia Corp.'s 17% plunge erased $589 billion from its value -- the largest such drop ever for a single stock. The S&P 500 semiconductors & semiconductor equipment sector fell 14% Monday.

Why DeepSeek's AI Model Has Wall Street Bullish on Software Stocks

Microsoft's Azure platform, Morgan Stanley analysts wrote on Tuesday, could benefit from a proliferation of AI models and consumer applications. Chinese startup DeepSeek's super-efficient open-source AI model may have sunk some of Wall Street's favorite AI stocks on Monday, but it may have also crowned some new favorites. Yesterday was the worst day for Nvidia (NVDA) and the Philadelphia Semiconductor Index (SOX) since March 2020. Yet some tech sector stocks have soared -- Salesforce (CRM) stock has risen 8% this week and Apple (AAPL) has climbed 7%. That's because the AI trade has, up to now, been driven by the suppliers of the "picks and shovels" of artificial intelligence: semiconductors, networking equipment, and electricity. But DeepSeek's success suggests AI's picks and shovels may not need to be as plentiful or as fancy as investors once thought. That could be a boon to AI buyers, like software companies, who pay cloud service providers and AI companies for access to foundational models and computing power. Several analysts predicted at the end of last year that AI agents -- digital assistants capable of performing more tasks than AI chatbots -- would draw more interest from investors. Major tech companies and upstarts have already begun rolling out AI agents that have the potential to reshape consumer behavior, and Wall Street has taken notice. OpenAI last week launched its AI agent, Operator, which the company said could order users' groceries or book their plane tickets. Salesforce's Agentforce saw "healthy early interest" in its first months, according to Bank of America analysts. And shares of med-tech company Tempus AI (TEM) soared last week after it released olivia, its AI-power health concierge. The pivot from infrastructure to application may have been hastened by DeepSeek's model, the cost-efficiency of which can likely be replicated by U.S. companies. "We believe that DeepSeek's innovations at the model layer reinforce our thesis that the Application and Platform layers are set to benefit as revenue moves from the Infrastructure layer and enterprises allocate more budget to AI," wrote Goldman Sachs analysts in a note on Tuesday. Lower computing costs, they say, "should help catalyze broader usage of AI workloads and encourage adoption across businesses and consumers." Goldman expects the benefits of lower computing costs to accrue first to major software companies with established AI products, including Microsoft (MSFT), Salesforce and Adobe (ADBE). But, they say, more efficient models should lower the barrier to entry for smaller competitors and encourage the proliferation of AI use cases. Morgan Stanley analysts agreed that enterprise software companies were most likely to benefit from the savings that should follow from America's DeepSeek reckoning. "More cost-efficient models are bringing down 'GenAI input costs' for the broader Software ecosystem," the analysts wrote. They highlighted Microsoft as a major beneficiary, noting its Azure platform is an optimal location for application developers to access and build on foundational AI models.

The emergence of DeepSeek is a positive for this 'Mag 7' giant, analysts say

Shares of Apple may actually benefit from the emergence of DeepSeek's artificial intelligence technology, according to Wall Street analysts. Tech stocks melted down on Monday after Chinese startup DeepSeek emerged as a new threat to current levels of investment in AI. The technology-heavy Nasdaq Composite ended 3.1% lower, but Apple was an exception, climbing 3.2% Monday. AAPL 5D mountain Apple shares over the past five days The reason that Apple managed to buck a massive technology selloff comes down to the iPhone maker being "the ultimate play on having an LLM in your pocket," according to Bank of America, referring to large language models used in AI. In fact, BofA analyst Wamsi Mohan believes the emergence of DeepSeek could eventually help Apple's bottom line. "On a day when AI stocks were down double-digit percent, Apple shares were up 3% as investors realize the potential for edge AI and there is a flight to safety driven by Apple's earnings resiliency," Mohan wrote. "If DeepSeek is truly able to lower the cost of AI inferencing and better models are developed faster and cheaper, then edge AI applications and Apple as the edge device maker, stands to benefit." In a Tuesday note, TD Cowen analyst Krish Sankar agreed. "Market focus on DeepSeek and efficient AI models (similar to AAPL's AFM LLM) could accelerate AI app innovation and mobile upgrades," Sankar said, referring to the Apple Foundation Model . "The advent of low-cost, efficient LLM models such as DeepSeek R1 could drive smartphone upgrade interest but creation of productive, end applications is still an important element." Besides potentially benefiting from DeepSeek's technology, Baird analyst William Power said that Apple faces "limited competitive impact from DeepSeek AI" versus other peers. "While DeepSeek AI has raised concerns for some of the AI infrastructure leaders, AAPL is less exposed, and is arguably well positioned to benefit from the potential expansion of GenAI capabilities," he wrote, "without spending tens of billions of dollars on LLMs or infrastructure." -- CNBC's Michael Bloom contributed to this report.

Why Apple Stock Dodged the DeepSeek AI Rout

Shares of Apple (AAPL) charged higher on Monday, bucking the trend as its large-cap tech peers tumbled on concerns about overspending on AI. AI stocks were reeling on Monday as Wall Street mulled the success of Chinese startup DeepSeek's open-source AI model, which can reportedly compete with leading American models from the likes of OpenAI and Google at a fraction of the cost. Apple, on the other hand, was among the S&P 500's best-performing stocks. It was up nearly 4% Monday afternoon as what was once considered a headwind for the company -- its relatively modest investment in AI compared with its mega-cap peers -- came to look more like a tailwind. The efficiency of DeepSeek's AI could also be contributing to Apple's outperformance. The iPhone maker's AI success depends on its ability to develop devices powerful enough to run AI models. DeepSeek's efficiency suggests that could be a less challenging and less expensive prospect than it once seemed. Jefferies analysts in a note on Monday warned, though, that an AI model efficient enough to run on an iPhone without raising costs is likely a ways off. "DeepSeek's success offers some hope," they wrote, "but there is no impact on AI smartphone's near-term outlook." Nuclear power stocks Vistra (VST) and Constellation Energy (CEG), which have run up in the last year amid surging electricity demand from AI data centers, led the sell-off on Monday. AI chipmakers like Nvidia (NVDA) and Broadcom (AVGO) plummeted as DeepSeek raised concerns that American tech companies don't need the most advanced, expensive chips to run powerful models. Cloud hyperscalers Microsoft (MSFT), Alphabet (GOOG)(GOOGL), and Amazon (AMZN) also fell on Monday. They have spent tens of billions of dollars on the AI arms race, building data centers, outfitting them with the most advanced hardware, and signing deals with energy providers to secure reliable sources of electricity. Jefferies analysts speculated DeepSeek could put executives at these companies under pressure to slow their pace of AI investment and explore ways to match DeepSeek's efficiency.

Three ways Apple is now benefiting from DeepSeek's early AI success - 9to5Mac

DeepSeek is quickly shaking up the state of AI in the US, but while several of Apple's competitors deal with negative fallout, Apple is -- for now at least -- benefiting from DeepSeek in three ways. Apple for years has been in fierce competition with several other companies for being the 'world's most valuable company' based on market cap. It's been the top company on numerous occasions, but most recently was dethroned by NVIDIA amid the current AI-driven surge. DeepSeek's fast impact on the US stock market, however, has sent shares from many tech players tumbling (including NVIDIA) while Apple's stock has actually increased in value. As I write this, Apple is again the most valuable company in the world, and DeepSeek is to thank for it. I've read a lot of articles about the rapid ascent of DeepSeek over the weekend. Do you know how most articles have proven claims of DeepSeek's popularity? They point to the App Store charts. DeepSeek currently has the top downloaded app on Apple's iPhone App Store. And that means a lot, especially for an app most of us had never heard of until now. In a season where Apple is constantly facing legal battles related to the App Store, DeepSeek is just the latest evidence of how much the App Store top charts have become a major signifier of cultural clout in the world. Apple is undoubtedly investing a lot of money into AI. But it's also one of the only major US players that doesn't appear to be negatively impacted by DeepSeek's reported ability to succeed 'on a budget.' While other companies have aggressively touted the need for significant capital investment in AI, DeepSeek has showed the US that we may be taking things too far. Apple's approach of quietly building from within sets the company up to avoid some of the major questions its competitors are now facing, and also feel bolstered in its belief that on-device processing is the way of the future. It's extremely early to say what kind of lasting impact on the AI landscape DeepSeek will ultimately have. For now though, it's making waves and unsettling many US tech companies. Perhaps Apple is one of those companies too, but at least for now, it's also benefiting from DeepSeek's early success. What do you think about DeepSeek's impact on Apple? Let us know in the comments.