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Investing.com -- AI-related stocks including those within the semiconductor space fell sharply in premarket trading Monday after Chinese AI startup DeepSeek’s new AI model climbed to the top of Apple’s App Store rankings over the weekend, posing a clear challenge to more expensive models like OpenAI.
The open-source model, which investor Marc Andreessen described as “one of the most amazing and impressive breakthroughs,” is outperforming OpenAI’s models at a fraction
of the cost, sparking questions about the massive investments in AI technology planned by companies such as Microsoft (NASDAQ:MSFT), Meta (NASDAQ:META), and Alphabet (NASDAQ:GOOGL).
However, analysts at Oppenheimer believe this moment could be an “unexpected” positive for semiconductor capital equipment (semicap) companies such as Applied Materials (NASDAQ:AMAT), KLA Corporation (NASDAQ:KLAC), and Lam Research (NASDAQ:LRCX) in the long term.
The analysts draw a parallel with the historical Sputnik moment and the subsequent Space Race, arguing that increased competition in the AI space is unlikely to reduce aggregate spending.
“We believe current capex spenders will respond by integrating Deepseek's advancements to accelerate development,” analysts led by Edward Yang said in a note. “This shift is also likely to reinvigorate new entrants and reengage players that had ceded ground to dominant AI leaders—now disrupted by Deepseek’s emergence.”
Oppenheimer posits that the advancements in AI, along with DeepSeek's cost efficiency, could expand the total addressable market (TAM) for AI applications, showcasing a classic demand elasticity similar to the PC/mainframe era.
Rather than cutting capex, companies might be inclined to invest more, considering the potential unlocked by DeepSeek's performance with limited resources.
According to the firm, the current level of AI capex is not exorbitant when compared to historical platform shifts like the internet buildout. For instance, the combined 2024 capex of the three hyperscalers and Meta is projected at around $240 billion, which is 17% of their combined revenue, a figure that is in line with historical trends.
DeepSeek's emergence is seen as consistent with ongoing trends in AI optimization, where token pricing has been decreasing significantly since the launch of models such as ChatGPT. Techniques such as quantization, sparsity, and distillation, which DeepSeek appears to leverage, are part of this trend. Oppenheimer analysts argue that we are still in the early "dial-up phase" of AI development, and the demand for silicon and related equipment will remain substantial.
As such, they maintain their view that semicap companies stand to benefit by supplying to all players in the AI field, thus avoiding the high-risk strategy of picking individual winners and losers.
The analysts reiterated their top picks in the sector, including Onto Innovation (NYSE:ONTO), KLA Corporation, and Ultra Clean Holdings (NASDAQ:UCTT), while remaining underweight on Cadence Design (NASDAQ:CDNS) Systems, citing potential AI disruption.