After worries about the perceived threat from a new open-source artificial intelligence model from Chinese startup DeepSeek hit shares in Nvidia Corp (NASDAQ:NVDA, ETR:NVD) and peers, analysts at Wedbush said it was instead a "buying opportunity" for investors in US big tech.
DeepSeek, a Hangzhou-based private tech company, launched a free, open source large language model AI in December, claiming it was developed in two months at a cost of under $6 million.
Last week the startup launched its R1 model, which that rivals OpenAI's ChatGPT and the Llama 3.1 model from Meta Platforms Inc (NASDAQ:META, ETR:FB2A, SWX:FB), sending DeepSeek's chatbot leaping to number-one on Apple's App Store over the weekend.
DeepSeek, founded by Liang WenFeng and his High-Flyer hedge fund that has about $8 billion in assets, said it built the model using reduced capability chips from Nvidia, with an open-source model that uses inference-time computing.
The developments are "very impressive", said Wedbush analyst Dan Ives in a note to clients, and thus the major agitation for US tech stocks was understandable.
He said the DeepSeek model is especially impressive if the company had to navigate strict chip restrictions from the US, though he says "it remains to be seen" if it found a way to work around these rules and what chips they ultimately used.
But he remained not overly concerned about the impact on Nvidia and co.
"A handful of times over the last few years there have been major tech sell-offs that were golden buying opportunities - today is another one of them in our view," said Ives, adding that he felt it was "not the time to panic as the bears try to finally rule the narrative today".
He said Wall Street will view DeepSeek as a major threat to US tech dominance and owning shares in AI-linked stocks.
While the Chinese model is impressive and is "will have a ripple impact", Ives argued that the 'Magnificent 7' and US tech are "focused on the AGI [artificial general intelligence] endgame with all the infrastructure and ecosystem that China and especially DeepSeek cannot come close to in our view".
Ives contended that the "focus" of AI is how it is being and will be used by businesses and the broader infrastructure propelling what he predicts will be $2 trillion of capital expenditure over the next three years, followed by physical AI around robotics and autonomous mobility.
Getting into his flow, the analyst suggested that DeepSeek will not stop this spending and "to some extent it might actually accelerate".
But Ives dismissed the chance that any major US corporation would rely on Chinese tech and said there is "only one chip company in the world" launching autonomous, robotics, and broader AI use cases, and that is Nvidia.
"Launching a competitive LLM model for consumer use cases is one thing, launching broader AI infrastructure is a whole other ballgame and nothing with DeepSeek makes us believe anything different," he said.
"DeepSeek impressed the tech community with this LLM model, but this is not launching 100x the capacity/algorithms that is needed to even consider this a competitive threat in our view."