DeepSeek, Domestic Stock Market Impact Inevitable... Caution Against Panic Selling

Between the 27th and 30th, when the domestic stock market was closed for the Lunar New Year holiday, the New York stock market suffered turmoil due to a cost-performance bomb dropped by the Chinese AI startup Deep Seek. Deep Seek unveiled its generative AI model 'R1,' which is reported to have performance comparable to OpenAI's flagship model 'ChatGPT' while costing only about 5.6% of the development expenses. Nvidia's stock, which had been trading above $140 per share, plunged about 17% on the 27th, falling below $120. Although the stock price later rebounded and recovered the $120 level, it still shows an unstable trend.

On the 31st, market experts advised that Deep Seek would also impact domestic semiconductor and power equipment investment-related stocks but warned against 'panic selling.'

The KOSPI index started the trading day around 2,500 with a weak tone on the first day of trading after the Lunar New Year holiday on the 31st. The index and other figures are displayed on the index status board in the dealing room at the Hana Bank headquarters in Jung-gu, Seoul. Photo by Yoon Dong-joo

Seungyoung Park, a researcher at Hanwha Investment & Securities, said, "Changes in capital expenditures (Capex) by U.S. big tech companies could affect the domestic stock market," adding, "The situation where more companies are investing due to the idea that AI can be created at a low cost would be negative for the domestic stock market." This suggests that AI generalization may not bring positive changes across the domestic stock market.

In fact, the KOSPI has rebounded 5.7% this year, and companies benefiting from big tech's AI investments, such as SK Hynix and HD Hyundai Electric, saw their stock prices rise by 27.1% and 16.5%, respectively. However, while domestic semiconductor companies, including SK Hynix, target high value-added markets, Chinese semiconductor companies are penetrating the general (legacy) semiconductor market, which is expected to have an adverse effect on domestic semiconductor firms.

After the Deep Seek shock, it seems unlikely that big tech companies like Microsoft, Amazon, and Alphabet will revise their large-scale investment plans. There remain questions about Deep Seek's development process, and the fierce competition to develop Artificial General Intelligence (AGI) first makes it difficult to reduce investments. Researcher Park said, "Microsoft has projected this year's investment outlook at $80 billion, 44% more than last year. Large-scale investments by big tech are expected to continue driving stock market growth this year," adding, "It is appropriate to keep both possibilities open and maintain a neutral stance on semiconductors." While the Deep Seek impact is anticipated, he warned that a negative sudden shift (panic selling) in views on the domestic stock market is risky.

Ji-young Han, a researcher at Kiwoom Securities, also said, "There are parts of Deep Seek that require fact-checking," analyzing, "It is possible that the approximately $6 million training cost disclosed by Deep Seek omits initial investment and labor costs, and it must be verified whether data was illicitly taken from OpenAI models." He added, "During the verification process, Deep Seek may turn out to be an exaggeration similar to previous cases where China caused technological ripples," and "The U.S. stock market could return to its usual path."

Youngjae Seo, a researcher at Daishin Securities, said, "Deep Seek's announcement does not change the fact that more computing power is needed to create improved models," but explained, "The decline in stock prices of semiconductor and power-related companies, including Nvidia, after Deep Seek's announcement reflects concerns that if AI models can be trained at low cost, companies may not need to purchase AI accelerators through massive investments."

Meanwhile, SangSangIn Securities predicted that since Deep Seek introduced the model based on open source, it could be an opportunity for domestic companies. Researcher Seungho Choi said, "AI may no longer be the exclusive domain of big tech in the future," adding, "If Deep Seek's methodology can be properly followed, AI development domestically and internationally, which had been hindered due to difficulties in infrastructure investment, could become more active." He also named NAVER as the biggest beneficiary in domestic AI on the internet side and Krafton in gaming.