The emergence of China's DeepSeek artificial intelligence model gave investors such a spook that Nvidia Corp (NASDAQ:NVDA) lost almost US$600 billion of its market cap, but the "Temu of AI" will not disrupt massive spending in the sector, analyst Dan Ives at Wedbush said.
Part of the worry for investors in the AI supply chain such as Nvidia, ASML, Arm Holdings and Super Micro Computer is that DeepSeek claimed to have developed its large language model (LLM) AI with $6 million dollars and none of Nvidial's newest and fastest GPU chips.
If this is possible, then why is Microsoft spending $80 billion and Meta spending $65 billion of capital expenditure?
Ives, like many other AI watchers in the past 24 hours, cast heavy doubt on DeepSeek's claims, but said it was a "clear shot across the bow from China to the US tech world" and that even with export controls on chips, the China tech community is "very resourceful and has impressive AI technology/models being built as we speak".
He likened DeepSeek's claim to the child who brings in a spectacularly good art project to school that makes all the others look bad "then two days later you find out that kid's parent is a well-known architect/engineer in town and actually built the project themselves while their kid watched TV. Now you view the project dramatically different."
There will be an impact on the US tech sector but, Ives acknowledged, but recalled how China's Temu was branded the "Amazon model destroyer" several years ago, but "Amazon's team adjusted and now look".
China developing strong AI models is no bad thing, he added. "It's actually a good thing to find more scale."
Ives, like many supportive AI commentators over the past day, said it could lead to the Jevons paradox, the economic principle that states increased efficiency can lead to increased consumption.
"Herein lies the key to the next step in the AI revolution," said Ives.
"We have spoken to many enterprises heading down the AI path/use cases in no way does DeepSeek make them flinch on spending seven/eight figures of their IT budgets over the next year on AI initiatives.
"DeepSeek does not disrupt the $2 trillion of AI cap-ex set for the next three years with Nvidia, Microsoft, Google, Amazon, Palantir, ServiceNow, Salesforce, Oracle, TSMC, and others front and center poised to benefit.
"LLM models will become cheaper and more commoditized over time...the value however is in the data, use cases, algorithm reasoning, and storage for AI.
"In a nutshell, DeepSeek created an awesome LLM model (and credit to its software developers) however this Chinese AI small lab/LLM model is not bringing down the entire US tech ecosystem with it."