Macro Intelligence: How DeepSeek is changing the AI landscape

Written by Juliette Saly

DeepSeek deep dive

In this week’s edition of IG Macro Intelligence, we examine the Chinese artificial intelligence (AI) company DeepSeek and its implications for markets.

AI anxiety disrupts US tech stocks

Chinese AI startup DeepSeek has disrupted the tech landscape, triggering a sell-off in United States (US) technology stocks. DeepSeek claims it took just two months and less than $6 million to build its advanced language model, DeepSeek-R1, using Nvidia's less-advanced H800 chips.

US President Trump described the disruption as a 'wake-up call', with the broader sell-off in tech stocks sparked by concerns that US mega-tech companies have invested excessively in AI, while the Chinese firm appears to offer a comparable service at a fraction of the cost.

Michael Frazis told ausbiz, 'Why pay companies like OpenAI $300 a month when equivalent models can be released? And it's not just DeepSeek.This will repeatedly happen in the foundational model sector, rendering previous spending redundant.'.

• Nasdaq 100

The tech-heavy Nasdaq 100 tumbled 3% during Monday’s trading in the US, marking its steepest drop in six weeks, and reducing its total market value by nearly $1 trillion from Friday’s close.

Nasdaq daily chart

• Nvidia

Nvidia shares plunged almost 17%, marking their biggest one-day loss since the onset of the Covid-19 pandemic in March 2020. Nvidia lost almost $600 billion in market value, the largest in US stock market history, surpassing its own previous record of a $279 billion wipeout in September.

Nvidia daily chart

Deep impact

Losses on the Australian sharemarket were more contained as markets reopened following the Australia Day holiday, largely due to limited exposure to AI and tech stocks.

Despite a note from Citi analysts suggesting that DeepSeek's developments would have limited impacts on near-term demand for data centres, both the real estate and tech sectors experienced declines. Citi analysts maintain that leading AI companies are unlikely to abandon advanced graphical processing units (GPUs). Instead, they expect DeepSeek to drive increased global demand for data centres.

ASX 200 sector heat map chart

• Deep Yellow (ASX:DYL)

Uranium miners faced pressure as DeepSeek raised concerns among investors about the potential for AI-driven efficiency to reduce demand for nuclear power, coinciding with new supply from industry leader Cameco coming online.

Deep Yellow 15 minute chart

• Goodman Group (ASX:GMG)

Real estate stocks also suffered, led by an 8% drop in industrial property manager Goodman Group.

David Lane from Ord Minnett remains positive on the outlook: 'The real esate sector is still hot, with more availability now. Long-term, data centres will remain important despite recent events.'

Goodman Group daily chart

The average target price for Goodman Group is a 'buy', according to Refinitiv, with a target price of $38.20, suggesting a 9% upside.

Citi has a 'buy' rating for Goodman, with a price target of $40, representing a 14.3% upside from current levels. However, analysts at Morningstar describe Tuesday’s decline as a 'reality check' on the data centre hype. They have retained a fair value estimate on the stock with a price target of $27, down from Tuesday’s $35 closing price.

• NextDC (ASX:NXT)

Shares in data centre operator NextDC were heavily affected. Despite its more than 7% slump following the DeepSeek shock, analysts remain positive about the outlook for NextDC.

NextDC share price target chart

The average price target on the stock is $19.31, indicating a 31% upside. Three of the 15 analysts surveyed by Refinitiv suggest buying the stock, while the other 12 have a 'strong buy'.

However, ASX Tradewatch data suggests investors should proceed with caution, as shares appear weak with little demand from investors, as evidenced by the 200-day moving average (MA) currently sloping downwards.

NextDC analyst recommendations chart

• DigiCO REIT (ASX:DGT)

For DigiCo, UBS has initiated coverage of the stock with a 'buy' rating and a $5.60 target price, representing more than a 37% upside.

The analysts note the real estate investment trust (REIT) is a diversified owner, operator, and developer of data centres, with capacity for future expansion.

DigiCO daily chart

AI adoption: winners and losers

Shawn Hickman from Market Matters says the road to AI adoption is long, with room for more winners and losers:

'Big valuation shifts in AI are happening. First-player advantage doesn't guarantee future success. Remember the shift from Nokia to iPhone. Just because people have talked about AI and AI companies have progressed very well in the last year or two, doesn't mean they'll be leading in five years.'