Chinese Artificial Intelligence (AI) firm DeepSeek rattled the AI industry with the announcement of its low-cost AI models, prompting a huge sell-off in shares of U.S. tech giants, including NVIDIA NVDA, Broadcom, Amphenol, AMD, Microsoft MSFT, Alphabet GOOGL and Oracle.
Microsoft through its OpenAI investment and GOOGL via Gemini models are direct competitors of DeepSeek along with Meta Platforms META Llama models. DeepSeek is now facing competition in the domestic front with Alibaba BABA, China’s leading ecommerce giant, releasing its latest Qwen 2.5 model.
BABA’s Model Surpasses DeepSeek, META, OpenAI
Alibaba claims that its Qwen 2.5 model outperforms DeepSeek-V3, OpenAI’s GPT 4o and META’s Llama-3.1-405B models. Alibaba has been facing the brunt of DeepSeek’s low-cost AI models as it was compelled to lower prices of its models post the launch of DeepSeek V2, predecessor of V3.
Apart from Alibaba, Baidu (Ernie 4.0), TikTok parent ByteDance (Doubao 1.5 Pro) and Moonshot AI are primary competitors of DeepSeek in the Chinese AI market.
DeepSeek’s models are gaining attention due to efficient performance at low costs and energy use. Its latest open-source model that was released last week, DeepSeek-R1-Zero and DeepSeek-R1, showed similar performance to that of OpenAI’s reasoning models and META’s Llama models on leading benchmarks such as the AIME 2024.
However, OpenAI is reportedly alleging that DeepSeek R1 was trained on its model, which violates its intellectual property rights.
Spending on AI to Remain Robust
DeepSeek’s low-cost open-source models are definitely raising questions about the spending trend of U.S. tech giants, which are expected to spend billions on model development and AI infrastructure.
DeepSeek V3 apparently costs $5.6 million as it was trained and developed on NVIDIA’s low-capacity H800 chips. DeepSeek uses less than 2,050 GPUs, while Meta Platforms reportedly uses 16000 chips of NVIDIA H100s to train its Llama 3 405B model.
OpenAI is estimated to have spent close to $3 billion on training models and data in 2024, per data from DeepLearning.ai. According to Reuters, U.S. tech giants are estimated to spend roughly $250 billion on AI infrastructure, with META alone planning to spend between $60 billion and $65 billion in capital expenditures on AI in 2025.
Moreover, OpenAI, SoftBank and Oracle, along with the Trump administration, announced the Stargate joint venture, which intends to invest $500 billion over the next four years building new AI infrastructure.
China has also created an AI investment fund worth 60 billion yuan (roughly $8.2 billion) to boost innovation. The country has invested significantly on developing the semiconductor industry to make advanced computer chips.
Which Among the U.S. Tech Giants is Best to Invest Upon?
DeepSeek’s sudden rise has put U.S. technology giants — Microsoft, Meta Platforms and Alphabet — under considerable pressure. These three companies have been leveraging AI, Generative AI (GenAI) and machine learning to boost potency of their offerings. They are also poised to spend most on developing AI infrastructure.
Microsoft has benefited most from the rapid deployment of GenAI thanks to its collaboration with OpenAI. This Zacks Rank #3 (Hold) company is benefiting from its strategic focus on cloud services, particularly Azure and the Office 365 suite.
Microsoft Corporation Price and Consensus
Microsoft Corporation price-consensus-chart | Microsoft Corporation Quote
Effective usage of AI has been aiding Meta Platforms to keep its users engaged. AI-driven feed recommendations have been a key catalyst for this Zacks Rank #3 stock.
Meta Platforms, Inc. Price and Consensus
Meta Platforms, Inc. price-consensus-chart | Meta Platforms, Inc. Quote
Alphabet is leveraging AI to attract new clients, win larger deals and deepen product adoption among existing customers. Its Gemini AI models are currently used by more than 2 billion users monthly across products and platforms. GOOGL also has a Zacks Rank #3.
Alphabet Inc. Price and Consensus
Alphabet Inc. price-consensus-chart | Alphabet Inc. Quote
NVIDIA, despite losing a chunk of its value on DeepSeek’s disruptive wave, is expected to benefit most due to its alluring portfolio. The semiconductor giant has been benefiting from the accelerating usage of its GPUs, including Hopper and Ampere architectures. In fact, we believe the dip in NVDA’s share price offers a buying opportunity for growth-oriented investors.
NVIDIA Corporation Price and Consensus
NVIDIA Corporation price-consensus-chart | NVIDIA Corporation Quote
NVIDIA currently has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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