DeepSeek and the future of AI: Market shifts, challenges and new possibilities

Welcome to Equiti Insights! In February’s edition, we’re covering China’s rising influence in AI with the introduction of DeepSeek. We’ll analyse the market reactions and how this could change the AI industry.

This is not financial advice, trading carries risk.

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China’s AI power play: Racing to own the future

Farah Mourad | Senior Market Research Analyst

The last week of January marked a dramatic turnaround for AI stocks as Wall Street saw a major sell-off. Initially, there were concerns that China's DeepSeek-R1, a powerful large language model, could challenge the dominance of US companies. But as the dust settled, the market rebounded, signalling that investors may have developed another perspective on AI valuations and reassessed the risks and opportunities in light of new developments.

The first domino to fall: Nvidia’s historic decline

At the height of the panic, the Nasdaq fell more than 3% – its worst day since 2022 – while Nvidia saw an 11% pre-market drop, marking its biggest drop in market value ever. Across the Atlantic, AI-linked European stocks such as ASML fell more than 7%, with ASML becoming the worst performer on the Euro Stoxx 50 index.

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The chart showcases DeepSeek-R1’s significantly lower processing costs, compared to established AI players like OpenAI, Google, and NVIDIA.

However, by the end of the week, investors reassessed the situation and the market largely recovered, showing that the AI industry remains resilient despite the changing dynamics.

How DeepSeek could revolutionise AI and boost the economy

If history has taught us anything, it’s that revolutions evolve. The steam engine didn’t reach its peak efficiency overnight, and neither will artificial intelligence. DeepSeek may shake up the industry, but it could also drive its evolution towards new possibilities.

Why DeepSeek could be good news:

• AI costs could fall: If AI models become cheaper to run, companies like Microsoft and Meta stand to benefit.
• A broader economic boost: Lower costs mean more widespread adoption, which could accelerate the AI revolution.
• A reshaped tech investment landscape: While chipmakers may suffer, cloud computing and software firms could thrive.
• Bond markets stay calm: The rush to safe havens hasn’t materialised, suggesting that investors see this as an adjustment, not a crisis.?

While some doubt its true capabilities, the existence of a cheaper AI model raises tough questions about the high cost of AI infrastructure. Could DeepSeek shake the very foundation of OpenAI’s dominance?

Tesla, Microsoft and Meta: The individual battles

While DeepSeek is unlikely to significantly impact the future direction of mega companies like Microsoft, Google, or NVIDIA in the short term, it will be interesting to see if its disruptive pricing model prompts strategic adjustments or competitive innovations in the AI landscape over time.?

Tesla: The struggle to stay ahead

Tesla’s latest earnings tell a story of intensifying competition, especially from Chinese EV makers like BYD. Slowing deliveries, an aging product lineup and shifting consumer sentiment are piling on the pressure. However, despite all this, investors remain cautiously optimistic. Elon Musk sees the removal of EV subsidies as an opportunity – it remains to be seen whether the market agrees.

Microsoft: AI gains, cloud pains

Microsoft delivered strong earnings, but its cloud segment fell just short of expectations, pulling its stock down by 5% in after-hours trading. Amazon, with its similar cloud exposure, also took a hit. But Microsoft’s AI division remains a bright spot, raising the key question: Can AI innovation translate into real profits?

Meta: The metaverse dilemma continues

Reality Labs is bleeding cash, but Meta’s overall earnings exceeded expectations. Investors seem torn – will Meta’s metaverse gamble pay off in the long run or will its stock remain volatile in the near term?

New chapter for AI industry

As markets recalibrate, the AI revolution is entering a new phase. The easy days of tech’s unchecked dominance may be behind us, but with disruption comes opportunity. Whether this is a passing storm, or the dawn of a new AI order remains the ultimate question for investors worldwide.

About Farah Farah Mourad is a Senior Market Analyst at Equiti, recognised for her award-winning expertise in risk management and contributions to top-tier platforms.

https://www.dhirubhai.net/in/farahmurad/ | Farah Mourad

Gold surges as tariff tensions and inflation fears mount

Ahmed Azzam | Regional Financial Market Analyst

Gold soared to unprecedented levels last week as investors flocked to the haven asset amid global uncertainty and rising inflation fears. The rally was fuelled by a variety of factors: increased safe-haven demand driven by geopolitical tensions, a weakening US dollar and declining Treasury yields.

Market unease increased after the Federal Reserve decided to hold interest rates steady, with Chair Jerome Powell signalling caution about future rate adjustments despite acknowledging that current policy remains “meaningfully above neutral.” This ambiguity, combined with a disappointing US GDP report that dented the dollar’s strength, made gold more attractive to international buyers seeking cheaper dollar-denominated assets.

At the same time, inflation worries have further strengthened gold’s status as a primary hedge, as investors increasingly turn to the precious metal to hedge portfolios against a decline in purchasing power. The backdrop of escalating trade risks, including President Trump’s looming tariffs on Mexico, Canada and key imports from China and Europe, has injected fresh volatility into markets, heightening fears of slower growth and price instability.

As policymakers navigate these crosscurrents, gold’s dual role as both a crisis buffer and inflation hedge continues to anchor its upward trajectory, reflecting broader concerns about economic resilience in an era of fragmented trade and monetary policy uncertainty.

Bitcoin ETF inflows surge to $588M

The US spot Bitcoin (BTC) Exchange Traded Funds (ETFs) saw a significant boost in investor interest and recorded a net inflow of approximately $588.22 million on Thursday. This marks the largest single-day inflow of the week, reinforcing strong institutional demand for the leading cryptocurrency.

Since gaining regulatory approval under former SEC Chair Gary Gensler, spot Bitcoin ETFs have accumulated a total net inflow of around $40.18 billion. Notably, none of the US spot Bitcoin ETF issuers reported outflows, with BlackRock’s IBIT and Fidelity’s FBTC leading the charge, securing $321 million and $209 million in new capital, respectively. Collectively, US spot Bitcoin ETFs now hold an estimated $123.43 billion in total net assets.

In the US, 15 states – including Texas, Florida, Massachusetts, Ohio, and South Dakota – are actively pursuing legislation to establish Bitcoin reserves as part of their financial strategies. Meanwhile, the Trump administration is exploring the possibility of a national Bitcoin stockpile as a safeguard against the country’s mounting national debt.

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About Ahmed Ahmed Azzam is a Regional Financial Market Analyst at Equiti specialising in technical and fundamental analysis, offering insights as a regular guest on well-known TV networks.

https://www.dhirubhai.net/in/ahmedazzamfx/ | Ahmed Azzam