Microsoft Corp (NASDAQ:MSFT) was one of the very few large-cap tech firms that was spared from the DeepSeek rout, but this "felt about right", according to UBS, but the 14% fall for Oracle Corp (NYSE:ORCL, ETR:ORC) "felt excessive".
The emergence of a potentially more efficient method for training artificial intelligence models "validates much of what Microsoft has been saying/doing of late", analysts at the Swiss bank said.
CEO Satya Nadella had elected not to fund OpenAI’s ambitious spending plans on GPU compute power from Nvidia and was one of the most vocal CEO about AI large language models "commoditizing".
UBS interpreted this as the Microsoft boss "signaling a desire to pivot away from material training GPU commitments to a single LLM and instead to scale an inference infrastructure for large enterprise customers". An inference infrastructure is the technical setup and systems required to deploy a trained AI model, allowing it to make predictions on new data by applying the patterns learned during training.
"That 'bet' looks like a clever one," the analysts said, as while Microsoft has made a very large singular investment in OpenAI, which now faces heightened competition, the pace of Microsoft’s own capex growth could slow beyond 2025 if DeepSeek triggers AI to become less compute-heavy.
Investor sentiment "might even improve" after Wednesday's earnings from Microsoft if it explains that their decision to eschew Stargate decision was about capex discipline, restoring investor confidence in their capex growth and ROI outlook.
On Oracle, the severe share decline on Wednesday "felt excessive" the UBS analysts said, although it reflected that much of the investor excitement about the company stems from its new AI exposure.
They noted that the vast majority of Oracle's revenues are still derived from CPU-based workloads, and Oracle’s training mix may be smaller than many think.
If DeepSeek does prove that AI training does require materially less compute, then the pace of Oracle’s capex growth "could moderate and Stargate could effectively be down-sized", the analysts said.
"But that is being perceived as low-probability given that Oracle just committed to a material Stargate capex commitment, and Oracle presumably would have been aware of the DeepSeek progress at the time (in fact we wonder if this is why the Stargate news was described so clearly by those at the podium as being part of a US-China race to AI supremacy).
"Any down-sizing of Stargate would clearly skim off the OCI upside that was just priced into Oracle shares."