Hidden AI Stocks Set to Rally Amid DeepSeek's Breakthrough, Analysts Predict

The recent launch of DeepSeek, a Chinese AI model reportedly cheaper and more efficient than ChatGPT, has sparked fears on Wall Street that companies may not need to spend as much on developing next-gen AI. This concern led to a significant sell-off in AI stocks, with Nvidia (NVDA) crashing as much as 15% and data center equipment suppliers like Vertiv (VRT) and Vistra (VST) plummeting by more than 20%. However, analysts believe that this sell-off presents a buying opportunity, as the cost efficiencies introduced by DeepSeek are expected to boost AI spending and infrastructure development.



The concept of Jevons Paradox suggests that lower AI training costs will lead to increased AI spending, as efficiency improvements typically result in higher overall consumption. Major companies like ASML, Microsoft, and Meta believe that the cost efficiencies introduced by DeepSeek will drive more AI spending and infrastructure development, viewing the stock price drop as a buying opportunity.

However, the rapid rise of DeepSeek has also raised regulatory and security concerns in several countries. Australia and South Korea have already banned DeepSeek on government devices, citing security risks. Additionally, U.S. lawmakers plan to introduce a bill to ban the chatbot app, raising concerns about potential misuse and data privacy issues. These regulatory and security concerns could impact DeepSeek's growth prospects by limiting market access, damaging its reputation, and increasing compliance costs.

To mitigate these risks, DeepSeek should focus on addressing regulatory concerns, enhancing data privacy and security measures, and maintaining transparency in its operations. By doing so, the company can help alleviate fears and build trust with users, partners, and regulators, ultimately fostering a more favorable environment for growth.

The integration of DeepSeek's AI model into various sectors, such as cloud application software and AI technologies, is expected to drive earnings growth and market expansion for Chinese tech companies. This is due to several reasons:

1. Improved Research and Design Efficiency: DeepSeek's open-source nature and cost-efficient model can improve software companies' research and design efficiency. By incorporating DeepSeek's model, these companies can save costs and drive earnings growth in the medium term.
2. Accelerated AI Adoption: DeepSeek's low-cost yet powerful model can accelerate AI adoption across various sectors in China. This includes businesses involved in cloud application software and AI technologies, which can benefit from the increased demand for AI services.
3. Expansion of AI Implementation on Edge Devices: DeepSeek's cost-efficient model can also benefit hardware companies by accelerating the generative AI implementation on edge devices, such as smartphones and smart glasses.
4. Market Reassessment: The global attention on DeepSeek can spur investors to reassess China's innovation capacity, potentially serving as a rerating catalyst for the Chinese equity market.

These factors combined suggest that the integration of DeepSeek's AI model into various sectors will drive earnings growth and market expansion for Chinese tech companies, as it can improve efficiency, accelerate AI adoption, and attract investment.

In conclusion, while the recent sell-off in AI stocks may seem alarming, analysts believe that the cost efficiencies introduced by DeepSeek present a buying opportunity. As the concept of Jevons Paradox suggests, lower AI training costs will lead to increased AI spending, driving more AI spending and infrastructure development. However, DeepSeek must address regulatory and security concerns to mitigate potential risks and foster a more favorable environment for growth. The integration of DeepSeek's AI model into various sectors is expected to drive earnings growth and market expansion for Chinese tech companies, as it can improve efficiency, accelerate AI adoption, and attract investment.