This week’s $1trillion technology stock rout may now seem an overreaction. But although the mood has calmed, investors are questioning their previous assumptions about the best ways to back the artificial intelligence (AI) revolution.
A fortnight ago, holding stakes in the Magnificent Seven of tech – Apple, Alphabet, Amazon, Meta, Microsoft, Nvidia and Tesla – seemed to be the only way to back this seismic change.
But the conviction that the hegemony of these companies was unassailable has been shaken by the emergence of DeepSeek.
This ‘open-source’ – free – Chinese generative AI system was created by founder Liang Wenfeng for a mere £4.8m, or so it is claimed, with limited reliance on Nvidia’s microchips.
DeepSeek may have its shortcomings, but it aspires to rival the ChatGPT system from Microsoft-backed Open AI.
The latest version of Chat GPT is said to have cost nearly £63m, although a great deal more has been spent on this venture.

Debut: DeepSeek founder Liang Wenfeng created the AI with less than £5m
The unnerving suggestion that splashing out on huge amounts of Nvidia’s wares was not necessarily vital caused the giant’s market capitalisation to shed about £474bn. The shares tumbled by 17 per cent.
Also hit were a broad range of US and European stocks seen as the beneficiaries of unbridled expenditure on every aspect of AI, including the Dutch semiconductor maker ASML, Dell Technologies, which makes servers, and Siemens – the energy production equipment supplier.
DeepSeek is said to require only 5 to 12 per cent of the energy required by state-of-the-art systems.
This sell-off caused Nassim Nicholas Taleb, author of the influential Black Swan – a treatise on unpredictable occurrences – to predict further turmoil.
However, the investment bank UBS told its clients this week: ‘AI is here to stay, and if anything, DeepSeek reinforces that.’
Stephen Yiu, manager of the Blue Whale fund, commented: ‘Some investors have taken fright this week. I am instead energised by the latest development. It won’t be the last.’
But although the panic has lessened amid the realisation that there will be a clientele for budget-conscious and more lavish AI systems, the DeepSeek revelation is a signal to reassess the contents of your portfolio.
This is not the moment to shun Big Tech stocks. But it may be appropriate to consider spreading your cash differently and readying yourself for more volatility.
PREPARE FOR MORE CHANGE
Mark Hawtin, of Liontrust Global, argues that this is a moment of ‘disruption and innovation’. David Coombs, of Rathbones, expounds the same theory, saying that access to AI will be ‘democratised’, with all kinds of companies able to embed the technology into their operations for less outlay, customising the technology as they wish. This implementation will also be more sustainable since less energy is involved. Hawtin cites the Jevons Paradox, cited by the 19th century economist Williams Jevons who observed that as steam engines became more efficient, coal consumption grew rather than diminished.
Hawtin says: ‘As AI gets more efficient and accessible, we could likely see it sky-rocket and turn into a commodity.’
Satya Nadella, Microsoft’s chief executive, is of the same view. Well, at least, that’s what he told his 3.3m followers on X, formerly known as Twitter.
Unveiling the company’s first quarter results, Nadella said: ‘Open AI has a lot more coming soon, so stay tuned.’
Nadella may also be comforted by the view that while some users will opt for inexpensive DeepSeek, others will fear the possible close links between this venture and the Chinese state.
Against this background, Chat GPT will be viewed as reassuringly expensive at an edgy geopolitical time.
SPREAD YOUR RISK INTO SOFTWARE
If AI becomes more accessible and affordable, this should mean more clamour for the services of software groups. Coombs cites Adobe, which writes programmes for art, advertising and design businesses. Its shares stand at $443, but brokers’ analysts have set an average target of $573.
Even before DeepSeek burst on to the public consciousness, Marc Benioff, boss of Salesforce – which specialises in customer relationship management software – said: ‘You’re just seeing the very beginning of what will be one of the biggest investment levels in the history of the world.’
Brokers seem to share Benioff’s optimism since they have set an average target price for the Salesforce shares of $395, against the current $342.
Dominik Asam, chief financial officer at Sap, the German software colossus, contends that DeepSeek could prove a boon.
The shares have advanced by 40 per cent over the past six months to €267, but this week UBS set a new target of €300.

BUT DON’T TURN YOUR BACK ON BIG TECH
The share prices of the members of the Magnificent Seven – whose fortunes are most entangled with AI – recovered following Monday’s sell-off.
Professional and private investors seized the chance to add to their Nvidia holdings, noting that the pullback merely returned the shares to their October 2024 level. Following some reflection, the arrival of DeepSeek was perceived to be propitious for Nvidia since, as Coombs puts it, the Silicon Valley titan seems set to gain a lot more customers, although it may sell far fewer chips to each one. Nvidia shares remain 91 per cent up over 12 months and 24,940 per cent higher than a decade ago.
Yiu believes that Alphabet, owner of Google; Instagram and Whatsapp group Meta; and Microsoft will not scale back their AI ambitions because they are engaged in an arms race ‘in which if you aren’t moving forwards, you’re moving backwards’.
Alphabet shares stand at $200, 31 per cent higher than a year ago. Analysts rate the stock a buy, with some having raised their target prices for the stock in the wake of the DeepSeek news which can be seen as a vote of confidence in Alphabet’s AI tool, Gemini. The average target price is $215.
Shares in Meta have leapt by 70 per cent over the past 12 months, but also continue to be seen as a ‘buy’. In the past few days, analysts have been setting higher target prices for the shares. KeyBanc’s target is now $750.
Microsoft is considered another ‘buy’. The average target price for the shares is $508.
But the excitement over AI, progress towards to this level may be slowed by the current, less-than-exciting performance of Azure, Microsoft’s cloud computing division.
Christophe Fouquet, boss of ASML, also believes that lower costs for the creation of AI will mean more demand for the machinery and products involved in the process.
Analysts’ belief in ASML is also unshaken, the shares remain a ‘buy’ with a target price of €839, against the current €706.
If dependence on AI surges, as forecast, this will mean yet more calls for data centres whose equipment must be maintained at constant temperatures.
This involves the cooling systems of companies such as Vertiv, whose shares slumped by 26 per cent to $109 in Monday’s selling frenzy. This could be a bargain punt on the next chapter in the AI revolution, but only for those with steely nerves.
Analysts rate Vertiv a ‘buy’ with an average target price of $143. I wanted to ask DeepSeek for its assessment, but the app proved impossible to download, reminding us that these are early days in this revolution.
DeepSeek ought to be an alert to check whether what you regard as broadly based global funds is made mostly of Alphabet, Amazon and the rest.
Exposure to these American all-stars is an essential part of a portfolio, but only a part.
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