DeepSeek: “Gift to the World” or Nightmare for U.S. AI Ambitions
First a quick discussion of DeepSeek and the implications, then I’ll get to Astera Labs (ALAB) and GE Vernova (GEV).
Following the launch of DeepSeek R1 and the company’s claims around compute efficiency, there has been a lot of speculation, concern and even bullishness swirling.
For us, the two pain points are ALAB and GEV, which took big hits yesterday due to questions on AI semiconductor demand (ALAB) and energy generation demand (GEV).
DeepSeek was developed quickly, inexpensively, and as an open-source solution.
According to the company, the training costs for its DeepSeek latest model were roughly $5.6 million, much lower than the cost for models developed by AI leaders such as OpenAI.
This raises questions about the sustainability of heavy AI investments and whether or not current spending levels across the industry are justified.
That said, there are a lot of unknowns. For example, what are “all-in” costs for DeepSeek’s model? To what extent did its development leverage more expensive models and infrastructure? Was it really that cheap? We don’t know, yet.
What we do know is that when the costs of transformative technologies that drive productivity and innovation decline, demand and adoption rates often increase.
This phenomenon, known as Jevons Paradox, has been gaining attention today. Markets appear to be reflecting more optimism on the potential, a stark reversal from yesterday’s panic selling.
Many technology-related stocks, including software companies, are rallying.
Viewed through this glass-half-full lens, DeepSeek R1 might just represent a step forward for the U.S. AI industry, not a step back.
That said, the situation is clearly dynamic. And there are considerable geopolitical implications if users continue to flock to DeepSeek’s model, which appears to be built on export-compliant GPUs but is also allegedly sending user data back to China.
Impact on ALAB and GEV
Following the launch of DeepSeek R1, both ALAB and GEV saw a “sell first, ask questions later” reaction from the market.
It’s unlikely these stocks will rebound to all-time highs right away. The selloff was just too severe.
It’s more likely that we will see a bit of a rebound, and then the stocks will stabilize until new, company-specific information comes out that clues the market into the latest developments.
GEV has already reported, so there’s less risk of upside/downside surprises there. ALAB is due to report the week after next, so there’s more risk of a move (up or down) here.
We have a half-sized position in both GEV (rated buy) and ALAB (rated hold). For now, I’m sticking with these ratings and watching this story closely.
Lastly, as I’m sure you’ve noticed, we’ve seen a nice upside move in our positions that have more leverage to AI solution adoption and less to semi/power/infrastructure spending.
Apple (AAPL), Cellebrite (CLBT) and Reddit (RDDT) are the three that come to mind. All three are rated buy.
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