These 3 Stocks are at Most Risk From China's AI Innovation

January 27 stands as one of the most eye-opening days in recent Wall Street history.

That's when the markets realized Western technology consumers had been lining up to download a low-cost yet advanced AI assistant app called DeepSeek-V3.

See, DeepSeek isn't just another ChatGPT-like AI assistant — it performs just as well as but the Chinese developers behind DeepSeek claim they spent just $5.6 million in semiconductor chips, about one-tenth of the astronomical development costs companies like OpenAI and Meta Platforms have spent on chips for their AI apps.

As markets realized the same AI performance can be achieved with fewer, and slower, chips, the companies supplying the expensive chips, and the companies that have spent billions on AI already, took a beating. But that's just the beginning.

Here are three other stocks that will struggle in this new DeepSeek era.

See, DeepSeek engineers leveraged Nvidia's (NVDA) reduced-capacity H800 graphics processing units (GPUs) to train its AI model, which achieved more robust performance outputs with lower development costs. That's a departure from usual AI model construction, as many US companies used significantly more powerful – and way more expensive – Nvidia H100 GPUs to get, as DeepSeek claims, more or less the same performance results.

On Wall Street, the market carnage rolled in fast and furious.

On January 27, Nvidia shares plummeted 17%, while competitors like Broadcom (AVGO) fell 17.4% and Marvel Technology (MRVL) face-planted by 19.1%. Chip stocks and the companies using those chips for AI technology development rebounded modestly in the days following the DeepSeek news. By January 30, NVDA was only down 15% for the previous five days, while Broadcom (-10.25%) and Marvel (-12.50%) followed suit.

Still, the damage hasn't been contained, at least while the notion of a cheaper and equally effective way of building AI models lingers.

"DeepSeek AI's entry into the market offers a disruptive combination of high-level capabilities at a fraction of the cost of industry giants like OpenAI," said Mel Morris, CEO at Corpora.ai, a London-based research engine technology firm. "This affordability opens the door for smaller companies and startups to leverage advanced AI technology that was previously inaccessible. Additionally, the open-source model empowers developers to fine-tune and experiment with the system, fostering greater flexibility and innovation."

Morris said that the emergence of DeepSeek AI could challenge the current competitive landscape and push major players like OpenAI to adapt quickly. "The idea that competition drives innovation is particularly relevant here, as DeepSeek's presence is likely to spur faster advancements in AI technology, leading to more efficient and accessible solutions to meet the growing demand," he notes.

Even so, DeepSeek and similar companies in the AI development pipeline may not be the tech sector wrecking ball investors think.

"Many people felt the rising tech giants’ capital expenditures would likely lead to a bubble, but instead, DeepSeek’s breakthrough will likely extend the rally for AI over time," said James Wo, founder and CEO of Digital Finance Group (DFG), a global blockchain and digital asset investment firm with more than $1 billion in assets under management.

Wo says the DeepSeek long-term model sustainability is no guarantee as the company (and others like it) must also keep up with market shifts.

"Relying on a single breakthrough of training efficiency without consistent innovation will cause it to plateau and lose its competitive edge over time," he noted. "Overall, DeepSeek’s breakthrough may not completely replace high-performant AI systems entirely but rather coexist in a hybrid ecosystem where different tools are optimized for specific use cases."

Three Stocks That May Have a Problem With the Ascent of AI

It's early in the game, and pinpointing stocks that will suffer at the hands of the DeepSeek saga is a tall task, as the technology and financial facts linked to the story are still being sorted out. Based on the idea that DeepSeek represents a more efficient way of building AI models, however, the following stocks would be at risk.

Nvidia. Perhaps the biggest DeepSeek-related concern is for manufacturing companies that depend heavily on high-end AI hardware sales. "Nvidia is the obvious choice here, but others, like AMD and certain semiconductor manufacturers, could also face headwinds if AI-reliant companies shift toward more cost-effective solutions," says Drew Cohen, marketing lead at the cryptocurrency company GME Ethereum

Oracle. Technology billionaires took a big financial hit from the DeepSeek dip, with Oracle's Larry Ellison, who saw his net worth fall by $27.6 billion early last week. (Nvidia CEO Jensen Huang wasn't far behind, with his net worth down by $20.8 billion.)

Oracle's stock value fell by $70 billion in the DeepSeek melee, although ORCL recouped half of those losses by the week's end. The longer-term problem is that Oracles has been investing heavily in data center development to match up with AI heavyweights like Amazon and Microsoft. A cheaper way to develop AI models threatens that model, mainly by curbing the need for pricey data center operations.

Broadcom. Broadcom has emerged as a powerful force in the AI network technology realm. If DeepSeek's impact on AI development sticks, it will hurt chip companies developing AI semiconductors and crimp their share performance. This week, Morgan Stanley cut its target price on AVGO from $265 to $246, citing "deflationary" AI evolutionary innovations and reduced AI spending enthusiasm.

The Takeaway on DeepSeek and Impacted AI and Chip Stocks

Even if DeepSeek doesn't see widespread adoption by enterprises in the US, it represents a tipping point.

"The technology industry is waking up to the fact they don't need to rely on the walled gardens and expensive fees of hyperscalers to access highly-advanced and innovative AI capabilities," said Marc Suidan, chief financial officer at Backblaze (BLZE), a data storage cloud company in San Mateo, Cal.

Up until a few days ago, it was conventional wisdom for most that AI innovation required a massive amount of capital and infrastructure that only multi-trillion dollar tech giants could provide. But that was an illusion, Suidan said.

"Using concepts and practices of the past that would eventually get chips to be way more productive, or disruptive innovation using open source solutions, DeepSeek mastered the second one, and proved that with limited resources, they can develop a powerful AI solution," he noted.

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