Apple and Meta platforms surge to lead Magnificent 7 stocks amid DeepSeek AI washout

Apple (AAPL) and Meta company stocks surged more than 2% on Monday, going against the dip of their Magnificent Seven counterparts. Other U.S. stocks dropped after a surprise advancement from DeepSeek raised questions about operation costs surrounding America’s AI industry.

The Chinese artificial intelligence company revealed a ChatGPT-like AI model called R1 that operates at a fraction of the cost of OpenAI, Meta, or Google’s AI models. DeepSeek disclosed that it spent just $5.6 million on computing power for its base model in comparison to the billions of dollars U.S. firms spend on their AI technologies.

Apple and Meta’s stocks rise as other tech stocks drop

Stocks exposed to AI have gotten hammered this morning (Semis -8%) in response to the reportedly cheaper but still powerful DeepSeek R1 model out of China. This is raising questions about CapEx and profitability for U.S. companies. pic.twitter.com/iYOhfUUHxd

— Liz Young Thomas (@LizThomasStrat) January 27, 2025

U.S. tech stocks got hit hard yesterday, including Nvidia (NVDA), which fell by 17%, Alphabet dropped by more than 4%, and Microsoft also plummeted by over 2%. It dragged down the broader stock market since tech companies comprise about 30% of the S&P 500. The news has caused the tech sector to continue dropping, including the S&P 500, which fell by 1.46%, and the Nasdaq, which decreased by 2.3% but has regained to positive 0.38 at the time of publication.

Apple and Meta Platforms reacted differently, surging over 2% yesterday. Gil Luria, DA Davidson analyst, believes that Apple reacted positively to the DeepSeek news because smaller more efficient models meant it would have better AI products in the iPhone.

DeepSeek’s success in running its low-cost model on underpowered AI chips circumvented the U.S.’ move to restrict the supply of high-power AI chips to China due to security concerns.

Fiona Cincotta, senior market analyst at City Index, said that the idea of a low-cost Chinese version wasn’t frontline, “so it took the market a little bit by surprise.” Cincotta added that the sudden insertion of DeepSeek’s low-cost AI model raised concerns over the profits of rivals, given the amount the companies already invested in more expensive AI infrastructure.

Meta revealed its plans last week to spend more than $65 billion this year on AI development. Sam Altman, CEO of OpenAI, also revealed that the development of in-demand chips needed to power the data centers that run the AI industry’s models would need trillions of dollars in investment.

Last week, OpenAI, SoftBank, and Oracle pledged to invest $500 billion in building AI infrastructure across the United States. President Donald Trump referred to the project as “the largest AI infrastructure project by far in history” that would help keep the future of technology in the U.S.

Vey-Sern Ling told BBC that DeepSeek’s AI model could potentially derail the investment case for the entire AI supply chain.

Micheal Block, market strategist at Third Seven Capital, said that time will tell if the DeepSeek threat is real. He added that the race is on as to what technology works and how the big Western players will respond and evolve. Block argued that markets have gotten too complacent at the beginning of the Trump 2.0 era and may have been looking for an excuse to pull back, “and they got one here.”

DeepSeek sends shockwave to U.S. tech industry

The company became the top-rated AI app on Apple’s App Store over the weekend, outpacing OpenAI’s ChatGPT. DeepSeek reportedly utilized Nvidia’s lower-end chips to create its powerful AI solutions at significantly cheaper prices than American companies.

“Chinese tech companies, including new entrants like DeepSeek, are trading at significant discounts due to geopolitical concerns and weaker global demand. DeepSeek’s rise could spark renewed investor interest in undervalued Chinese AI companies, providing an alternative growth story.”

–Charu Chanana, chief investment strategist at Saxo.

The Chinese artificial intelligence company’s researchers revealed the open-source DeepSeek-V3 model was trained for around $6 million. Marc Andreessen referred to DeepSeek R1 as “one of the most amazing and impressive breakthroughs” he has ever seen.

DeepSeek also said yesterday that it will temporarily limit registrations due to large-scale malicious attacks on its software. The firm assured its existing users that they could still log in as usual.

DeepSeek also dropped another open-source AI model, Janus-Pro-7B, yesterday amid the R1 hype. The firm said that Janus-Pro outperforms OpenAI’s DALL-E 3 and Stable Diffusion’s 3 Medium text-to-image generators across multiple benchmarks.

This week is also pivotal to the U.S. tech industry due to the upcoming earnings from major companies within the Magnificent Seven group.

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