Investing.com– Chinese artificial intelligence firm DeepSeek launched a set of new open source models over the past week claiming to match offerings from rivals such as OpenAI for a fraction of their cost.
The launch and subsequent testing of the company’s flagship model- DeepSeek R1- sparked questions over just how much of the recent capital expenditure on building AI infrastructure, which has stretched into hundreds of billions of dollars among U.S. majors- was justified.
Bernstein analysts noted that the new models were impressive, in their ability to compete with leading models from OpenAI and Meta (NASDAQ:), while claiming to use a fraction of the investment and chip infrastructure used by their competitors.
They dismissed the claims that DeepSeek built OpenAI for $5 million, and that broader market panic over the models appear overblown.
“If we acknowledge that DeepSeek may have reduced costs of achieving equivalent model performance by, say, 10x, we also note that current model cost trajectories are increasing by about that much every year anyway (the infamous “scaling laws…”) which can’t continue forever,” Bernstein analysts wrote in a note.
They noted that the AI industry needed innovations like DeepSeek to keep progressing, in that it could squeeze more performance out of existing hardware.
The brokerage noted that the need for increased AI infrastructure still persisted, on the belief that any new computing capacity was likely to get absorbed by increased AI demand.
Bernstein recommended not buying into the “doomsday scenarios currently playing out in the Twitterverse,” and that the brokerage still recommended NVIDIA Corporation (NASDAQ:) and Broadcom Inc (NASDAQ:) (both rated Outperform) for their AI prospects.
Market darling Nvidia fell sharply on Friday and appeared poised to extend losses on Monday amid concerns that innovations like DeepSeek will necessitate lesser investment in AI infrastructure.
Wall Street futures also fell sharply on Monday, with losses biased towards tech stocks on doubts over future AI investment.
