Titans
Big tech earnings were under the spotlight after DeepSeek rocked AI-focused stocks last week. Have these firms done enough to keep the competitive threat at bay?
Few had heard of the obscure Chinese AI startup DeepSeek until it climbed to the top of the app store charts last week. Researchers say its R1 model stacks up pretty well against some of the top AI models from OpenAI – even though it allegedly cost under US$6m to build. Its overnight success became Wall Street’s nightmare, causing a trillion-dollar tech rout. Nvidia ($NVDA) alone shed US$593b from its market cap in a day.
There are a lot of unanswered questions about DeepSeek. Is it sending user data to China? Will DDoS attacks be a recurring theme? And perhaps the most burning question of all: will it disrupt the way big tech approaches AI?
To train its model, DeepSeek claims to have used fewer Nvidia H800 GPUs – substantially less powerful than what OpenAI used for ChatGPT and Meta ($META) used on Llama 3.1. It seems like U.S. AI chip export restrictions to China might have backfired a little, and actually inspired them to do more with less.
If that’s the case, surely American tech companies can do the same. Microsoft ($MSFT) and Meta’s earnings report shed some light on their capex spend on AI infrastructure. Microsoft plans to allocate up to US$80b for AI this year, and Meta will put up as much as US$65b.
Microsoft also reported higher-than-expected EPS of US$3.23 and said it was adding DeepSeek to its Azure offerings. Its AI business surpassed an annual revenue run rate of US$13b, up 175% YoY. But its revenue guidance fell short of expectations, and sent its share price lower on earnings day.
Meta had a similar mixed bag of earnings, and CEO Mark Zuckerberg came to the earnings call prepared for questions about DeepSeek. He said ‘investing very heavily in capex and infra is going to be a strategic advantage over time.’ The firm reported an EPS of US$8.02 vs. US$6.77 expected, and while Meta didn’t share revenue guidance, the firm did say it expects expenses for 2025 to fall between US$114b and US$119b.
Apple ($AAPL) reported its best ever quarter with US$124.3b in revenue. The standout was its services segment, which accounted for US$26.34b, marking a 14% YoY increase and offsetting the 0.8% YoY drop in iPhone sales. Its AI strategy is also more measured than some of its Silicon Valley peers. The firm’s capex spend was US$2.15b, and not all of it was geared towards AI.
All three tech giants praised DeepSeek’s innovation. So where does this leave Nvidia? Well, the firm seems enthusiastic about DeepSeek’s R1 model and is even pushing its GeForce RTX 50 Series GPUs as the best tool for the job. But curbs on chip exports to China could sour those plans. Either way, the next few months will be very interesting. The chip wars aren’t slowing down any time soon.
