Last month, a new artificial intelligence (AI) model gained attention in the markets for its effectiveness and cost efficiency. The Chinese company DeepSeek announced that its AI chatbot performs similarly to ChatGPT and was developed at a cost of less than $6 million, prompting questions about the efficiency of tech giants’ spending on AI.
Alphabet, the parent company of Google, falls into this category. It has been working on its own chatbot, Gemini. Despite concerns raised by DeepSeek’s emergence, a leading executive at Google appears unshaken.
Demis Hassabis, CEO of Google DeepMind, which spearheads AI development at Google, acknowledged the capabilities of the DeepSeek AI model but noted it lacks groundbreaking advancements. He emphasized that despite the excitement surrounding it, there is no significant scientific breakthrough associated with the launch that would impact the tech industry.
The notable aspect of DeepSeek’s model is not that it surpasses ChatGPT or Gemini in capability. Instead, it is remarkable that a relatively unknown Chinese company, less than two years old and with approximately 200 employees, managed to achieve such development at a lower cost. This development suggests that other tech companies not heavily investing in AI might still compete by leveraging DeepSeek’s open-source model.
As for Alphabet investors, DeepSeek’s model is unlikely to threaten Gemini or similar chatbots significantly. Governments globally have already banned it or are considering doing so due to privacy concerns, potentially limiting its widespread adoption as an alternative to ChatGPT and Gemini.
However, Alphabet investors might be more concerned about the company’s plan to invest $75 billion in capital expenditures this year, focusing on AI development, a significant increase from the $52.5 billion spent in 2024. For investors, the key issue might be whether these investments translate into substantial growth drivers, possibly through enhanced AI features in services like YouTube or Google Search, which could be monetized.
Although DeepSeek might not be a major concern for Google, its swift development of a competitive product has drawn attention in the markets. This could prompt more scrutiny on AI-related spending, with investors keen to see tangible results from these investments soon.
Investing in Alphabet’s stock today presents an interesting proposition. Although a leading tech company with potentially enhanced products and services due to AI, the path ahead could be volatile. The company may face pressure to cut spending and reduce staff to address investor concerns about AI expenditure.
While enthusiasm for AI might temporarily justify spending, investor skepticism, particularly given the advancements of the DeepSeek AI model, could challenge Alphabet and other tech companies to validate their AI investments. Risk-averse investors may consider staying on the sidelines, as a correction in AI stock prices might be forthcoming. Alphabet remains a viable long-term investment, trading at 23 times its trailing earnings, yet short-term volatility is expected.
In related disclosures, Suzanne Frey, an executive at Alphabet, serves on The Motley Fool’s board of directors. David Jagielski has no positions in any mentioned stocks, while The Motley Fool holds positions in and recommends Alphabet. They adhere to a disclosure policy.
