Author: Geoff Cooper
Head of Investment Management, Chartered Wealth Manager - Chair of the Investment Committee
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Published: January 2025
The launch of DeepSeek-R1 last week, an open-source ArtificiaI Intelligence (AI) model from China, has sparked widespread discussion about the future of AI. With claims of comparable performance to leading proprietary models such as ChatGPT, significantly lower development costs, and an open-source framework, DeepSeek challenges the dominance of Silicon Valley’s AI giants. But what does this mean for the hyperscalers, the broader AI ecosystem, and the evolution of AI itself?
Disrupting the Hyperscalers
For the last few years, global equity markets have been dominated by a small group of AI hyperscalers – Silicon Valley tech giants such as Microsoft, Nvidia, and Google – that have invested billions of dollars in developing proprietary AI systems. While their cutting-edge models have pushed the boundaries of what AI can do, the cost of development has been astronomical, with returns yet to justify their investments. DeepSeek’s emergence could alter this dynamic. On Monday, Nvidia’s market value plunged by over $589 billion (16.97%) – the largest single-day loss in history for any company; a stark reflection of the shifting landscape. By offering a high-performance, cost-effective, open-source alternative, it may force the hyperscalers to rethink their pricing models and approach to monetisation. Consumers and businesses, particularly those operating on tighter budgets, could gravitate towards these affordable alternatives, challenging the status quo.
The Open-Source Advantage
One of the most significant aspects of DeepSeek is its open-source nature. This approach could encourage collaboration and accessibility, enabling developers and researchers worldwide to build on its capabilities. Open-source AI could accelerate innovation, shifting power from centralised tech hubs and allowing smaller businesses and emerging markets to participate in, and benefit from, AI advancements away from the priorities of Silicon Valley.
Challenges Ahead
However, the path to broader adoption of open-source AI is not without obstacles. Public testing and scrutiny will be essential to ensure performance and security. DeepSeek may also find itself embroiled in geopolitical tensions, particularly as trade wars intensify and concerns over data security and potential surveillance arise. For businesses and governments, the question will be whether they are willing to embrace a model that could disrupt the current power balance in the AI world.
A New Chapter for AI – and Investors
DeepSeek’s launch could mark the beginning of a healthier and more competitive AI ecosystem. For investors, this disruption serves as a reminder of the importance of broad diversification. Over the past few years, the dominance of US tech and AI sectors has led to elevated valuations, drawing significant attention but also concentrating risk. While these sectors remain innovative, chasing expensive, overhyped trends can often lead to disappointing long-term returns.
Instead, investors should focus on a diversified approach across regions and industries. This means looking beyond the US tech sphere to identify value and growth opportunities in emerging markets, underappreciated sectors, and industries that may indirectly benefit from AI advancements. Diversification provides a hedge against the volatility of concentrated investments and creates opportunities to participate in broader economic growth.
Ultimately, DeepSeek’s success will depend on adoption and execution, but its emergence reminds us that no market dominance lasts forever. At MM Wealth we prioritise valuation discipline, avoid chasing hype, and seek opportunities across various sectors and geographies, positioning our clients for the next chapter of AI’s evolution and beyond.
If you would like to talk to one of our Chartered Financial Planners, please contact us on 01223 233331 or email info@mmwealth.co.uk.
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Opinions constitute our judgment as of this date and are subject to change without warning. The value of investments and the income from them can go down as well as up, and you may not recover the amount of your original investment.
The information in this article is not intended as an offer or solicitation to buy or sell securities or any other investment, nor does it constitute a personal recommendation.
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