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DeepSeek Disrupts, Big Tech Responds

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January 31, 2025

TLDR: Discussion about ongoing investments in artificial intelligence by big tech players like Microsoft and Meta, while Apple struggles with growth in iPhone sales and China business. Tesla plans for 2025 and 2026, Starbucks' first quarter under new CEO looking similar to previous ones, and robust consumer spending indicated by Visa and Mastercard. Analysis of UPS and ServiceNow stocks on hosts' radar.

1Ask AI

This week’s episode of Motley Fool Money features analysts Jason Moser and Asit Sharma discussing a pivotal moment in artificial intelligence (AI) as new market entrants challenge established companies. The focus is on a significant AI competition, particularly from a Chinese firm called DeepSeek. Here's what you need to know from their insightful conversations.

Key Highlights and Insights

The Impact of DeepSeek on AI Landscape

  • DeepSeek's Emergence: A new AI chatbot from DeepSeek is shaking up the market by demonstrating comparable performance to elite models from OpenAI, at significantly reduced costs.
  • Market Reaction: After the announcement, major tech stocks, including NVIDIA and others involved in AI hardware, faced huge sell-offs, wiping out billions in market capitalization.
  • Innovative Training: DeepSeek's R1 model utilizes fewer activated parameters during computations and employs an approach called "sparsity" to enhance training efficiency. This challenges previous assumptions about the costs associated with high-end AI models.

Major Tech Company Earnings Rundown

  • Microsoft: Despite strong revenues nearing $70 billion, Microsoft's cloud infrastructure growth fell slightly short of expectations. Nevertheless, they continue to invest heavily in AI capabilities, showcasing flexibility in integrating the best technology available.

  • Meta (Facebook): The company reported impressive growth with $48.4 billion in revenue, primarily driven by its social media platforms. Meta is investing substantially in AI and reality technologies, which, despite high spending, seems to satisfy investors currently.

  • Apple: Apple faced stagnation with only 4% revenue growth in its iPhone segment. As challenges in its China market persist, analysts are questioning Apple's growth strategy moving forward.

The Future of AI and Technology Spending

  • Predictions and Caution: Analysts express caution amid the rapid pace of change within AI tech. While many companies are increasing capital expenditure (CapEx) in AI, uncertainties about the long-term demand and effectiveness of these investments loom.
  • AI Reliability Concerns: A study highlighted the low accuracy of DeepSeek’s model in delivering reliable news, indicating that while technological advancements are impressive, trust in AI outputs remains a primary concern.

Stock Discussions

  • UPS: The company is poised to cut its business ties with Amazon amid changing market dynamics. This strategic move aims to improve profit margins despite the risk of declining volume from a major client.
  • ServiceNow: This enterprise software company remains a focus for future growth despite a recent dip in stock price due to missing analyst estimates. Analysts recommend buying the dip as ServiceNow continues to refine its offerings for Fortune 500 customers.

Conclusion

As we traverse this rapidly evolving AI landscape, the implications of new players like DeepSeek could redefine investment strategies and market dynamics. The podcast highlights the vital need for businesses to adapt to these shifts while maintaining a focus on sustainable growth amidst fluctuating consumer demand and technological reliability. Investors and tech enthusiasts alike are encouraged to stay informed as the technology sector grapples with both opportunities and challenges in the era of AI.

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