DeepSeek Illustrates the Significance of the AI Race
Founded by a quant fund manager, DeepSeek is a Chinese AI startup that seemingly came out of nowhere to wreak havoc on Wall Street on Monday. Allegedly, Deepseek has discovered the “holy grail” of AI and created a ChatGPT-like large language model (LLM) on a shoestring budget of just ~$6 million. If true (and there are doubts), DeepSeek’s success (shot to number one on the Apple (AAPL) app store) is unprecedented. Mega-cap tech stocks like Microsoft (MSFT), Meta Platforms (META), and Alphabet (GOOGL) have spent literally billions of dollars to buildexpensive data centers to power AI filled with expensive Nvidia (NVDA) GPUs. Regardless of whether or not DeepSeek’s claims are valid, Wall Street investors pulled the trigger on selling AI-related stocks first and asked questions later. For instance, Nvidia’s $560 billion swoon Monday marked the single largest daily market cap loss for a stock in history.
Whether you believe that what DeepSeek accomplished was on a low-budget or not, the model unveiled was impressive, regardless of the cost.
“Deepseek’s r1 is an impressive model, particularly around what they’re able to deliver for the price.” ~ Sam Altman, CEO of ChatGPT parent OpenAI
“DeepSeek is an excellent AI advancement and a perfect example of Test Time Scaling.” ~ Nvidia Spokesperson
BABA Unveils Qwen2.5-Max
The whirlwind week is an example of how fast the pace of advancement is in AI and AI models. Yesterday, Alibaba (BABA) unveiled a new large language model that claims to beat DeepSeek, ChatGPT, and Meta’s Lama. According to BABA, it outperformed the global leaders in almost every metric.
Below, I will explain three reasons investors should buy the stock (even when you don’t account for BABA’s new AI model):
1. BABA’s Historically Low Valuation
BABA’s current valuation is the cheapest it has ever been. In addition, BABA’s valuation is inexpensive compared to that of its American counterparts. For instance, Amazon (AMZN) has a P/E ~50x while BABA’s is just 12.94x.
Image Source: Zacks Investment Research
2. BABA’s Enjoys Easy Earnings Comps
Wall Street is a game of expectations, and BABA’s expectations remain low. Earnings down trended from 2021 to 2023. In 2024, BABA’s earnings rebounded, and by 2026, they are set to explode. A rebounding Chinese economy, new AI innovations, and fiscal stimulus should lead to a stronger Chinese stock market. Furthermore, BABA is no longer reliant only on the Chinese consumer – the company is pushing to expand into global markets such as Spain and South East Asia.
Image Source: Zacks Investment Research
3. BABA Breaks Out
BABA shares are curling up the right-hand side of a massive base structure. Tuesday, as news of Qwen broke, volume turnover swelled, signaling heavy demand for shares.
Image Source: TradingView
Bottom Line
If “Qwen’s” results hold up, Alibaba can cement itself as a premier AI juggernaut. Regardless, BABA is historically cheap, faces easy comps, and enjoys a bullish technical pattern.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
