Wed Jan 29 06:12:50 IST 2025: ## Chinese AI Firm DeepSeek Undercuts US Tech Giants with Low-Cost Reasoning Model
**Chicago, IL** – A new open-source reasoning AI model, R1, developed by Chinese company DeepSeek, is disrupting the generative AI landscape. The model’s performance rivals those of leading US firms like OpenAI, Anthropic, and Google, but at a fraction of the cost – over 90% less than OpenAI’s latest offering.
This development has sparked investor concern regarding the massive investments US tech giants have poured into generative AI. Morningstar analysts suggest that R1’s success points towards a “commodification of complements” in the LLM market. Lower LLM prices, they argue, will ultimately benefit major cloud providers like Amazon, Microsoft, and Google, increasing demand for their cloud infrastructure.
While Morningstar maintains its fair value estimates for Microsoft, Amazon, and Alphabet, the analysts acknowledge that the significant capital expenditures in the sector will likely remain elevated in the short term. However, these expenditures are increasingly geared towards meeting the surging demand for generative AI fueled by lower LLM prices, rather than solely on developing cutting-edge models. The analysts further predict that US tech companies will adapt DeepSeek’s cost-cutting techniques, potentially lowering their own long-term expenses.
The analysts emphasize that this is an opinion and not financial advice. Investors should consult financial professionals before making investment decisions.
First Piper 