DeepSeek's innovative AI model R1 challenges big tech players, impacting market dynamics
From Nasdaq: 2025-02-04 10:33:00
The podcast discusses the impact of DeepSeek, a Chinese AI company, on the market, causing a significant drop in market cap for big tech players like NVIDIA. DeepSeek’s innovative AI model, R1, offers performance comparable to Western models at a fraction of the cost, leading to a reassessment of AI compute needs.
Apple struggles to find growth with the iPhone and in China, while Tesla plans for a big 2025 and 2026. Starbucks’ first quarter under new CEO Brian Niccol mirrors previous ones. Visa and Mastercard indicate consumers are doing well. UPS and ServiceNow are two stocks to watch.
DeepSeek’s R1 model is trained at a lower cost and provides cheaper inference, challenging the need for high-end chips and cloud buildouts. This has led to a rapid resizing of the total addressable market for companies in the AI and technology space.
The market shakeup caused by DeepSeek’s AI innovation has impacted chip companies, cloud buildout companies, and energy companies as the industry reassesses the need for expensive technologies. This rapid resizing of the TAM reflects how technology advancements can quickly change market dynamics and investor perceptions. DeepSeek’s potential in the AI market is uncertain due to the newness of the technology. Newsguard study ranked DeepSeek’s chatbot low in accuracy and reliability compared to other AI engines. It’s a reminder that perfecting AI technology will take time for reliability and trust to be established.
ASML, a chip equipment manufacturer, reported volatile sales due to the demand for high-end EUV machines. Despite the unpredictability, revenue grew by 24% with a positive outlook. ASML’s decision to stop issuing bookings guidance could impact the market, but AI remains a driving force for the company.
Microsoft’s revenue increased by 12% to nearly $70 billion, driven by growth in their Cloud business, including Azure. Despite lower-than-expected earnings per share growth, Microsoft’s solid results highlight their strength in the AI infrastructure market. Microsoft’s partnership with Open AI positions them well in the AI industry. Microsoft reported solid results, slightly missing expectations due to a 31% revenue growth. The company is heavily investing in AI, with CapEx exceeding $22 billion last quarter. Meta, on the other hand, saw revenue of $48.4 billion, up 21% with earnings per share up 50%. Despite heavy spending on AI and reality labs, investors remain optimistic about Meta’s future. Zuckerberg believes the infrastructure buildout is a strategic advantage for Meta. Overall, it seems that Tesla’s earnings report was not as impressive as some had hoped, with questions arising about the profitability of the auto side of the business. Total automotive revenue was down 8%, deliveries grew 2%, and operating cash flow increased modestly. However, energy generation and storage revenue saw a significant increase. Tesla’s revenue for the year was up just 1%, reflecting market dynamics and competition in the electric vehicle space. They have focused on lowering the cost of each vehicle to remain competitive. Tesla CEO Elon Musk announced plans for a more affordable model set to start production in the first half of 2025. Despite potential margin compression, Tesla must focus on volume sales to compete with low-priced Chinese cars. Musk also discussed future projects like unsupervised full self-driving in Austin by June and a robotaxi slated for production in 2026.
Starbucks, under new CEO Brian Niccol, reported underwhelming numbers with flat revenue and declining global comp store sales. Niccol aims to shift focus to premium pricing and experiences, reducing discounts and increasing brand storytelling. Despite challenges, he sees potential to double the number of Starbucks stores in the US.
Investors are optimistic about Tesla’s future beyond just cars, with Musk discussing ambitious goals like surpassing the combined worth of the top five companies. Starbucks’ new leadership aims to turn the company around by focusing on premium pricing and experiences. Despite challenges, both companies are looking to increase market share and profitability through innovative strategies. Starbucks CEO Brian Niccol is focusing on the company’s original story and the role of coffee houses in communities. Priorities include empowering baristas and simplifying the menu. Shareholders are optimistic about the plan, likening it to Niccol’s successful strategy at Chipotle. Starbucks aims for a 30% reduction in SKUs by 2025.
Mastercard and Visa report strong numbers from the holiday season, reflecting consumer spending trends. Mastercard’s net revenue rose 14%, with gross dollar volume up 12%. Visa saw net revenue of $9.5 billion, up 10% year-over-year, with overall payments volume increasing by 9%. Both companies are investing in cybersecurity to protect their networks.
Visa is set to partner with Elon Musk’s X app to offer financial services like peer-to-peer payments and money transfers. Musk aims to expand X beyond a social media app. Visa sees this as a low-risk opportunity to explore new avenues for growth. Consumers may be hesitant about moving money through the X app. Elon Musk has created a creator economy within Twitter, allowing users to monetize their platform. UPS faces challenges as it plans to cut volume with Amazon by 50% over the next few years, impacting top-line growth but aiming for profitability. ServiceNow takes a hit as subscription revenue falls slightly below analyst projections, but remains a strong company with Fortune 500 relationships. Winners like ServiceNow may continue to win in the long term, offering value to patient investors. Investment experts Jason Moser and Rick Engdahl disclose their positions in various tech and retail giants like Alphabet, Amazon, Apple, and Starbucks. The Motley Fool also reveals its positions in key players like Microsoft, Nvidia, and Tesla. The website recommends certain options for investors and emphasizes its disclosure policy.
Read more at Nasdaq: DeepSeek Disrupts, Big Tech Responds