DeepSeek's Impact on the AI Sector: An Investor's Perspective

The emergence of DeepSeek, a Chinese startup that has developed a low-cost artificial intelligence (AI) model with performance comparable to ChatGPT, has shaken the market and raised important questions for investors. This event could signify a significant shift in how tech companies approach AI investments.

• Doubts about the Necessity of Large Expenses: DeepSeek's announcement has led investors to question whether the large sums spent by tech giants like Microsoft and Meta are really necessary to remain competitive in the AI field. If a model with similar performance can be developed for just $6 million, the "spend more to get better results" strategy could be called into question.
• Market Reaction: The news caused an immediate negative reaction in the stock markets, with the Nasdaq Composite and S&P 500 experiencing sharp declines. Nvidia, a company seen as the poster child of the AI boom, lost a record amount in market value in a single session. This demonstrates how sensitive investors are to any news that could undermine the value of companies that have heavily invested in AI.
• Defense of AI Spending: Despite the doubts, executives from companies like Microsoft and Meta defended their AI spending during calls with investors. Microsoft CEO Satya Nadella stated that the costs associated with AI are decreasing and that demand will increase exponentially. Meta CEO Mark Zuckerberg stressed that DeepSeek's success reinforces his belief that open source AI is the right strategy.
• The Open Source Debate: The question of whether an AI model can create a competitive advantage when training data is generally available is another concern highlighted by Bernstein analysts. The ability to create a "moated business" in this context has become a central theme for investors.
• International Rivalry: The emergence of DeepSeek has challenged the assumed superiority of U.S. tech companies compared to their foreign competitors in the AI sector. This adds an element of uncertainty for investors who must now consider the possibility of more intense competition on a global scale.

 

Implications for Investors:

• Re-evaluation of Strategies: Investors may need to re-evaluate their investment strategies in the tech sector, considering not only companies that spend more but also those that can create significant innovations with more limited resources.
• Focus on Efficiency: The efficiency of AI models and their ability to operate with lower costs could become key factors in assessing a company's growth potential.
• Diversification: Investors may want to diversify their portfolios, not relying solely on large U.S. tech companies but also considering alternatives in the international landscape.
• Attention to Market Reaction: Investors should remain vigilant in the face of possible new market swings caused by further developments in the AI field.