From Investor's Business Daily, January 26:
Why China Startup DeepSeek Could Spell Trouble For Nvidia, AI Stocks
China's DeepSeek startup roiled artificial intelligence-driven stocks on Monday as Wall Street mulled huge investments by technology industry giants in AI infrastructure as well as demand for Nvidia (NVDA) chips. DeepSeek's apparent advances have raised questions over the computing power needed to develop AI systems, a key driver for AI stocks.
DeepSeek released a large language model (LLM) in late December that had performance comparable to OpenAI and other AI systems despite U.S. government restrictions on exports of advanced chips. On Jan. 20, DeepSeek released another LLM that it said was trained at a fraction of the cost of AI systems from OpenAI, Alphabet's (GOOGL) Google, Meta Platforms (META) and other U.S. companies.
The Wall Street Journal reported on the AI phenomenon on Sunday.
While OpenAI and Google have developed proprietary AI models, DeepSeek has relied on widely available "open source" technology. Reports have differed over what Nvidia chips DeepSeek has been using to build AI models. While some reports point to less powerful H800 chips, others claim DeepSeek's parent, High-Flyer, has been able to buy more advanced H100 Nvidia AI chips despite U.S. export restrictions.
Nevertheless, stock futures fell solidly Sunday night. Nasdaq futures sold off as Nvidia and other AI stocks were indicated lower on Robinhood
The news appeared to gain attention on Friday, taking a toll on Nvidia and other AI hardware stocks.AI Stocks: DeepSeek Raises Questions
"DeepSeek clearly doesn't have access to as much compute as U.S. hyperscalers and somehow managed to develop a model that appears highly competitive," said Raymond James analyst Srini Pajjuri in a Sunday report. "The natural question is, how would DeepSeek's emergence impact compute intensity growth and the demand for hardware/semiconductors?"
Startups OpenAI and Anthropic have been battling Google, Meta and others in developing large, multimodal and small language foundation models.
Further, DeepSeek reportedly spent only $5.6 million over two months to develop its latest AI model, noted economist Ed Yardeni in a report.
Meanwhile, DeepSeek's success could weigh on U.S. earnings reports, Yardeni said, amid enormous capital spending increases by Google, Meta, Microsoft (MSFT) and others. Microsoft is the biggest investor in OpenAI.
"This might be bad news for the Magnificent 7 that had plans to dominate the AI market with their expensive AI services," Yardeni added. "The question is whether they will disappoint because their capital spending on AI is soaring faster than are their revenues. That could squeeze their collective profit margin." He says chipmaker Nvidia also could be impacted.
Also, at Raymond James, Pajjuri offered a different scenario.
"A logical implication is that DeepSeek will drive even more urgency among U.S. hyperscalers to leverage their key advantage (access to Nvidia GPUs) to distance themselves from cheaper alternatives."....
....MUCH MORE
If interested see also January 25's - "Why everyone in AI is freaking out about DeepSeek"
