DeepSeek vs. Chinese stocks – It’s all a baseless bull rally

While DeepSeek left US stocks crumbling, shares of public companies with supposed ties with the AI firm soared in China. According to reports, rumored investors in DeepSeek, Huajin Capital, and Zhejiang Orient increased by 10% on Monday. In addition, a research firm named Sublime China Information rose by 20%, as it is also believed to be working with DeepSeek on its AI projects.

In response, Sublime China Information denied working with DeepSeek in a disclosure. Huajin Capital also denied to a Chinese business news outlet that it ever mentioned a DeepSeek investment. Investment company Zhejiang Orient hasn’t replied, but there’s no public evidence that they invested in DeepSeek, either. 

What’s next for US AI stocks?

Although China’s stocks are enjoying bull rallies, US stocks bled. Lukman Otunuga, a senior market analyst at online broker FXTM, said, “DeepSeek has shown that innovation doesn’t need a trillion-dollar price tag […] If US tech leaders fail to convince investors of their edge, AI stocks could face further pressure this week.”

In addition, according to David Bahnsen, the chief investment officer at The Bahnsen Group, the DeepSeek disruption could be the needle that pops the tech bubble. Bahnsen has been wary of large growth stocks for years. He has warned that the market is overly dependent on richly valued Magnificent Seven stocks, though the Nasdaq has charged higher anyway.

He claimed, “The idea that this level of spending on AI may not be necessary or prudent to begin with […] well, that could prove to be a fundamental game-changer on top.”

Bahnsen also thinks US-based AI companies will receive a big valuation reduction. This is because markets aren’t properly pricing in competition. This makes DeepSeek a serious threat to Nvidia

However, cloud companies likely won’t cut back on AI spending anytime soon. In fact, Microsoft CEO Satya Nadella suspects that AI spending will take off as the technology becomes more efficient.

In the same light, the POTUS said, “If you could do it cheaper, if you could do it for less and get to the same end result. I think that’s a good thing for us.”

US stocks are now steady. In New York, the Dow Jones Industrial Average closed 0.3% higher, the S&P 500 rose by almost 1%, and the tech-heavy Nasdaq gained 2%.

Cheaper and better AI

For the longest time, AI budgets shot through the roof every year. In fact, this year, 82% of manufacturers surveyed by Rootstock intend to increase their AI budgets.

The DeepSeek news initially caused panic selling. However, some market experts think that if AI becomes cheaper and more efficient, it could boost the market in the long run.

Solita Marcelli, the chief investment officer of Americas for UBS Global Wealth Management, said, “A lower-cost model could help speed AI adoption, which in turn increases the potential demand for services in the intelligence and applications layer (those using AI), as well as potentially enhancing productivity gains for the wider economy.”

In addition, UBS said that demand for AI might soar if it becomes less expensive and uses less energy. This would be a big success for many companies, and it could also benefit Nvidia if it makes more sales at lower chip prices. 

Meanwhile, Nvidia stock rose nearly 9% on Tuesday. The AI chipmaker is beginning to recover from a massive decline on Monday. Still, Nvidia itself didn’t express much anxiety over the DeepSeek buzz as it called R1 an excellent AI advancement.

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