On January 27, Chinese startup DeepSeek is drawing increased attention from investors with its cost-effective AI technology, putting the significant investments made by U.S. tech giants in the spotlight as industry analysts anticipate its impact on this week's pivotal industry reports.
DeepSeek reported developing an AI model using Nvidia's less advanced H800 chips in just two months at a cost of under $6 million. The V3 model powered an app that became the top iPhone download in the U.S. The startup, established in 2023, asserts that its AI models rival or surpass leading U.S. competitors at a fraction of the cost, challenging the notion that scaling AI necessitates extensive computing power and financial outlay.
The surge in market value of the "Magnificent Seven" companies has been fueled by the business necessity initiated by ChatGPT in November 2022, with approximately $10 trillion added.
Bernstein analyst Stacy Rasgon noted, "DeepSeek's pricing surpasses that of its competitors.” Following DeepSeek’s advancements, shares of AI chip pioneer Nvidia dropped by 16%, Microsoft by 3.8%, and TSMC by 14%.
Rasgon and fellow analysts pointed out that DeepSeek's training costs for the V3 model may be higher, as the cited $6 million only covers computing expenses, leaving uncertainties about the costs of developing the touted R1 model.
However, this is a substantial difference from the estimated $250 billion that analysts project major U.S. cloud companies will spend on AI infrastructure this year, a concern for investors anticipating returns.
As American tech giants prepare to disclose their results this week, stakeholders expect company executives to provide insights into their strategies, particularly in light of DeepSeek's innovative disruptions.
The potential impact of DeepSeek's rise has prompted discussions on the necessity of the current pace of capex spend and technological upgrades, with analysts awaiting statements from U.S. hyperscalers on their AI investment plans.
Though DeepSeek's pricing may incite a price war and challenge competitors like OpenAI, concerns about adopting Chinese AI technology persist due to geopolitical tensions and data security issues. Despite this, some investors see an opportunity for American tech giants to leverage DeepSeek's advancements to drive technology adoption and boost chip demand.
Mark Malek, chief investment officer at SiebertNXT, commented, Did DeepSeek discover a more efficient AI processing model? Perhaps, but industry incumbents are likely to embrace any new techniques found, expanding the AI landscape for the future.