DeepSeek AI: A Game Changer for the AI Market?

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The AI Investing Pulse

January 30th, 2025

In this week’s edition:

1. Analysis - DeepSeek AI: A game changer for the AI market?

2. Stock Ideas - Broadcom could emerge as a more valuable company than Meta

3. News - Tesla, Microsoft, and Meta report mixed earnings results

4. Startups - Venture capital faces a reckoning with DeepSeek breakout

5. Trends - The AI trend that could send software stocks soaring in 2025

6. Other News - 20 free AI productivity tools for smartphones in 2025

DeepSeek AI: A Game Changer for the AI Market?

What’s Happening

China may have just found a way to compete with the US in AI, despite strict semiconductor sanctions. DeepSeek, a Chinese AI startup, has surged to the top of Apple’s App Store rankings in the UK, US, and China, sparking renewed debates about whether China can maintain AI competitiveness without access to Nvidia’s latest chips.

Key Developments

• Low-cost AI model development: DeepSeek claims to have developed its AI model for under $6 million, far less than the billions spent by OpenAI and Google.

• Performance claims: The company states its DeepSeek-R1 model matches OpenAI’s best models in mathematics, coding, and natural language processing.

• Use of older Nvidia chips (A100s): Unlike firms reliant on restricted H100 GPUs, DeepSeek reportedly trained its model using previous-generation A100 GPUs, which are still available in China.

• Workarounds to US chip sanctions: DeepSeek is believed to have optimised model training using distributed computing, low-bit quantisation, and alternative computing methods, compensating for its reliance on older hardware.

If true, this would represent a paradigm shift in AI development efficiency and a wake-up call for US policymakers.

Key Questions for Investors

• Can DeepSeek really build an OpenAI-level AI with just $6 million? - If its claims are accurate, this could signal a major shift in AI model efficiency. If not, it raises questions about transparency and benchmarking in China’s AI industry.

• What are the implications for semiconductor, AI software, and energy companies? - If AI efficiency gains like this are scalable, it could reduce dependence on high-end chips and alter demand forecasts for semiconductor firms. More efficient AI models could also impact energy companies, as lower computational power requirements may affect long-term electricity demand from AI-driven data centres."

• Will governments impose new regulatory measures in response to China’s AI progress? - The US may expand restrictions beyond H100s, while China may accelerate domestic chip investments to reduce reliance on US technology.

Market Reaction

DeepSeek’s rise has already shaken investor sentiment across AI-related stocks, semiconductor firms, and the energy sector. On Monday, these stocks saw significant declines, but they have since regained some losses as investors recalibrated their expectations.

Companies Facing Uncertainty

• Nvidia (NVDA): Stock dropped 17% as fears grew that China’s AI sector is progressing without reliance on its latest chips.

• ASML (ASML), TSMC (TSM), Broadcom (AVGO), Marvell Technology (MRVL) & Astera Labs (ALAB): Semiconductor and AI infrastructure stocks declined amid concerns over long-term demand for high-end chips and increased scrutiny of AI hardware reliance.

• Vistra Corp. (VST) & Constellation Energy Corp. (CEG): Power companies fell double digits, as DeepSeek’s efficiency raised doubts about continued surging electricity demand from AI-driven data centres.

Companies Gaining Attention

DeepSeek’s rise is shifting investor focus away from semiconductor dependency and toward software driven AI innovations. Goldman Sachs & Morgan Stanley expect software firms to be the biggest winners, as cost-efficient AI models lower entry barriers. Some of the stocks gaining attention in this context include:

• Enterprise AI & Cloud Computing (as AI computing costs decline) - Microsoft (MSFT), Amazon (AMZN), Google (GOOGL).

• Cybersecurity & AI Risk Mitigation (as AI-driven threats increase) - Palo Alto Networks (PANW), CrowdStrike (CRWD), Fortinet (FTNT).

• Software Applications and Infrastructure (as AI adoption expands across enterprises and automation accelerates) - ServiceNow (NOW), Elastic (ESTC), Salesforce (CRM), Shopify (SHOP), Adobe (ADBE), Datadog (DDOG), Cloudflare (NET).

Geopolitical & Regulatory Considerations

DeepSeek’s emergence has intensified discussions about AI policy and national security.

• Some analysts expect the US to extend restrictions to older Nvidia A100 chips, attempting to slow China’s AI progress.

• Others believe China will accelerate domestic AI chip production, reducing its long-term reliance on US semiconductor technology.

• With AI becoming increasingly geopolitical, regulatory uncertainty is likely to persist and could create volatility in AI-related stocks.

A Transformative Moment for AI?

DeepSeek’s rapid rise raises fundamental questions about AI leadership, efficiency, and regulation. As the industry shifts its focus towards software and cloud-based innovation, geopolitical tensions are increasingly shaping the AI landscape, perhaps more than technological capabilities alone. Investors and policymakers are now closely watching whether existing export controls remain effective in limiting China’s progress.

Regardless of whether DeepSeek’s breakthrough proves sustainable, it challenges conventional assumptions about AI development. If China can consistently build competitive AI models without access to cutting edge chips, the long held belief that AI progress is tied to leading edge semiconductors may no longer hold.

The race is now accelerating, with AI development advancing rapidly and the debate over AI dominance intensifying. This is bigger than AI, it’s about the future of global technology leadership.

_{Disclaimer - This content is provided for informational purposes only and does not constitute investment advice, personal recommendations, or an invitation to engage in any investment activity. The information presented is derived from publicly available sources and should not be solely relied upon for making investment decisions. Always consult with a qualified financial professional before making investment choices.}

TOP AI STOCKS

TOP AI ETFs

AI STOCKS IDEAS 

Broadcom could emerge as a more valuable company than Meta in 2025 - MSN

uiPath stock jumps on positive in-house report on Agentic AI adoption - Stocktwits

My favourite AI stock to buy and hold - The Motley Fool

AI STOCKS & ETFs NEWS 

Tesla, Microsoft, and Meta report mixed earnings results - EuroNews - Tesla and Microsoft fell short of market expectations in the growth of their core businesses, while Meta Platforms exceeded analysts' estimates across all metrics.

Alibaba beats OpenAI and Anthropic in AI tests - Techzine - Alibaba Group Holding published benchmark scores and praised what it called itself the world’s leading performance with the release of its new model for AI.

Trump reveals Microsoft is in running to acquire TikTok - Yahoo Finance - rump communicated his interest in seeing a competitive bidding process among American companies for the ownership of the popular social media platform.

Cathie Wood’s ARK snaps up Amazon stock ahead of Q4 earnings - TipRanks - Cathie Wood’s Ark Invest snapped up additional Amazon shares ahead of the e-commerce and cloud computing giant’s fourth-quarter results.

AI STARTUPS

After pouring billions into AI, venture capital faces a reckoning with DeepSeek breakout: ‘It’s a gut check’ - Fortune - For the venture capital industry, DeepSeek’s emergence could create a paradigm shift in how firms fund AI startups.

Medtech startup Quibim Corrals $50M to advance AI analysis in medical imaging -  MedCity News - Hospitals and biopharma companies are among the startup’s customers, using its technology to analyse images to detect disease and guide clinical trial enrollment.

AI TRENDS

The AI trend that could send software stocks soaring in 2025 - MSN - A growing chorus in Sillicon Valley and on Wall Street believes enterprise software will join the AI party in 2025.

The future of AI: How AI will change the world - Builtin - AI is constantly changing our world. Here are just a few ways AI will influence our lives.

OTHER

20 free AI productivity tools for smartphones in 2025 - Smartprix - AI tools boost productivity by handling repetitive and straightforward tasks, allowing for greater creative freedom.

7 unexpected ways AI can transform your investment strategy - Investopedia - Modern investors now have access to sophisticated AI powered tools that can analyse vast amounts of both financial and alternative data, identify patterns.

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_{Disclaimer - The information contained on this newsletter does not constitute investment advice or a personal recommendation, nor is it an invitation or inducement to engage in investment activity. You should seek independent financial and, if appropriate, legal advice as to the suitability of any investment decision. Past performance is not a guide to future performance. The value of investments, and the income from them, can fall as well as rise. You may not get back the full amount invested and, in some cases, nothing at all. The information presented is based on publicly available data and sources believed to be reliable; however, its accuracy or completeness cannot be guaranteed. Market conditions can change rapidly, and the information provided may no longer be up to date. This content is for informational purposes only and should not be construed as financial, legal, or tax advice.}