On the beginning of the trading day on January 27th, Nvidia shares plummeted by 17 percent. The reason was the release of Chinese AI model Deepseek. The interesting thing about it is that it is open source, you can download the whole model, with the size of around 20 Gigabytes, analyze it, change it and make it a base for your own model. But why does Deepseek release, send down the price of US giant AI firms? The three cloud computing behemoths and Meta, which has also been working on AI models, spent a total of $180 billion on data centers last year, a 57% increase from the previous year. Microsoft said earlier this month that it will invest an additional $80 billion in AI infrastructure by 2025. Meta said last week that it will invest $65 billion on AI this year.
However, all of that expenditure can be labeled as waste of resources if high-performing models can be trained with less processing power. While investors in the cloud computing behemoths may be relieved that there won’t be any more capital expenditures, they may suddenly be concerned about what will happen to their current investments. The implications of all of this for Nvidia and other data center equipment suppliers, as well as those who supply the electricity that powers them, are even more concerning. Shares of Cameco, a manufacturer of uranium used in nuclear power, and Siemens Energy, a manufacturer of electrical equipment, have fallen by 13% and 20%, respectively.
In 2022, the US government prohibited the export of the most advanced AI chips. However, the release of Deepseek may suggest that the sanctions did not work in the way US authorities hoped. Now Trump may conclude that the answer is to further tighten export restrictions, worsening the blow for companies in the AI supply chain.
DeepSeek’s innovations are already showing promise to certain Wall Street bulls. Businesses may employ AI more as training AI models becomes more affordable. As investors bet on declining costs, shares of companies that are constructing services on top of others’ AI models, such as corporate software company Salesforce and iPhone manufacturer Apple, have already increased.
Source: Economist
