News and analysis

Three giant tech names marked the midweekly set of corporate reports when the echoes of a large AI-related stock price fall were still audible. The plummet on January 27 has been triggered by an emergence of a low-cost generative chat model, made by a small Chinese start-up DeepSeek. A sudden sell-off in Nvidia (NVDA) and other AI flagships seem to have exhausted themselves. Even though the news was probably over-reacted, it couldn't but leave an imprint on investors' perception of fresh and objective quarterly numbers. Shares of Meta Platforms (META) remained most resilient to the overall cautiousness over the fate of AI budgets, as Meta recently switched into cutting its own costs and improving groundworks from other primary developers. Therefore, the Facebook and Instagram parent company delivered a fantastically record Q1 profit of $8.02 per share on $48.4 billion of revenue to beat even already high average expert expectations of $6.73 per share on $47.0 billion, compared with Mark Zuckerberg's brainchild's previous achievement of $6.03 on $40.6 billion in Q3. A 33% quarter-by-quarter growth in pure income led to a 50% of additional profit in the ending quarter of 2024 vs the same period only a year ago. As an immediate response, Meta's market value jumped by nearly 5% to as much as $708 per share in after-hours trading on Wednesday, January 29. But it later slid again by nearly $20 per share to about $688, as Meta CEOs reported somewhat muted outlook, with their own Q1 2025 sales projection between $39.5 billion and $41.8 billion, vs analyst pool's estimate of $41.72 billion and only an inch better than it was through July to September quarter. This partially tempered outstanding results in the last three months of 2024, especially as Mr Zuckerberg admitted that total expenses for 2025 would be supposedly planned inside the range of $114 billion to $119 billion, up from $95 billion in 2024. In any case, Meta's family daily active people (DAP) metric for unique users to open at least one of Meta apps rose by almost 5% YoY to now reach 3.35 billion people, and advertisement views' contribution is still a vital lifeblood for its ever-rising market cap. It is consolidated well above $1.7 trillion after adding a double digit percentage for the last two weeks, even if we count that Meta share price may resist from another temptation of climbing the $700 landmark.

Meta's triumph was widely anticipated, but Microsoft (MSFT) was the real, if maybe more hidden, hero of the reporting period's culmination. Its cloud unit's Azure growth was 31% up QoQ, which was high, though very close to average consensus. This was a better situation compared to a rather unhappy cut of cards three months ago, when Microsoft forecasted Azure growth between 31% to 32% for Q4 vs market estimates of 32.25% on average. The crowd was not deluded in vain and was fully prepared for such a scenario. Success of Azure prompted Microsoft's total revenue rose by as much as 12.25% to $69.6 billion YoY in the December quarter against $62 billion in Q4 2023 and analysts' average estimate of $68.78 billion. This record achievement included 6% of sales climbing during the last quarter. Microsoft earned a profit of $3.23 per share to beat consensus expectations of $3.11 per share, being so close to repeating its Q3 2024 absolute record in quarterly profits of $3.30.

This has not prevented Microsoft stock price from sliding by nearly 5%, so that bulls in the Window developer temporarily abandoned their previous defence positions above $440 per share to replace them with a lower area around $420 at the moment. This means the stock dipped on strong financial numbers just a day after fully recovering from DeepSeek headwinds, despite worries on harder competitions from a Chinese newcomer for Microsoft's close partner and the AI veteran OpenAI. However, Microsoft has passed the double crash test this week. We have no doubt that more dip buyers will appear soon, as Microsoft also posted a 67% YoY growth in what it calls commercial bookings, meaning new contracts signed with large customers, mostly driven by a large new Azure contract with OpenAI, according to Brett Iversen, Microsoft's vice president of investor relations. OpenAI also confirmed a data center deal with Oracle (ORCL), but it is Microsoft who retains the rights to most of the hosting of OpenAI's models.

As to DeepSeek's alleged threat, this low-budget AI chatbot was freshly ranked low in terms of news delivery accuracy. An audit made by NewsGuard revealed a mere 17% accuracy rate to place DeepSeek only 10th out of 11 Western chatbots, including OpenAI's ChatGPT and Google's Gemini. When using the same 300 news-related prompts to evaluate who is better, DeepSeek happened to repeat false claims from the network in 30% of all cases, also giving unhelpful answers in 53% of the time in response to news-related prompts. Western rivals averagely failed in 62% fail rate of all cases vs 83% for DeepSeek, which is hardly performing "on par or better" than Microsoft-backed OpenAI, but at a lower cost, as it was initially claimed. The 300 test prompts reportedly included 30 prompts based on 10 false claims circulating online, with topics ranging from killing UnitedHealthcare executive Brian Thompson to downing of Azerbaijan Airlines flight. In 3 out of 10 prompts, DeepSeek reiterated Beijing's government's stance on the particular topic, even when the very point was not related to China.

As for Tesla stock, it lost about $50 per share, or about 12%, from its January peak price before this Wednesday night's report, but has quickly recovered more than 4.5% to trade above $400 again. Reversing recent losses to another bullish wave soon is a basic scenario after the electric car maker shared its plans for further growth in 2025, even though Tesla reported last quarter's revenue missing consensus hopes. Tesla's profit margin from vehicle sales, excluding regulatory tax credits, which would be banned soon by Trump's administration, decreased to 13.6% from above 17% in the quarter. Tesla CEO Elon Musk shared his view late last year that car sales would grow 20% to 30% in 2025. And this time Tesla proclaimed more than 60% production growth over 2024 levels even before the process may require any further investment in manufacturing lines. The hyping firm also promised cheaper electric vehicle models in the first half of 2025 after costs reportedly "had hit their lowest level ever in the fourth quarter, at less than $35,000, driven by lower costs of raw materials". Its Q4 sales came out at $25.71 billion, falling short of Wall Street experts' bets on $27.23 billion, citing slowing demand with higher interest rates and global competition which continued to weigh on. Earnings per share were $0.73, only slightly below the $0.76 in consensus estimates. Tesla said its discounted prices were aimed at defending and expanding sales later, with outlined plans for Tesla's Cybercab robotaxi to enter mass volume production in 2026, but a robotaxi rollout in the U.S. and supervised full self-driving system in Europe and China will be ready this year. Our conclusion here is that technical retests of a lower price area between $350 and $375 cannot be ruled out yet, but this range will provide a strong support, while more upside towards $500 will follow in any scenario, with or without additional corrections.

Bitcoin (BTC) is up 0.5% this week to $105,122, recovering from a sharp 6.4% drop to $97,696 on Monday. The decline was triggered by Donald Trump’s tariff threat against Colombia. Though, BTC pulled through it surviving during panic over China’s DeepSeek R1 chatbot and a hawkish Federal Reserve (Fed) meeting on Wednesday.

However, there were positive developments as well. Fed Chair Jerome Powell acknowledged that banks can serve clients holding crypto assets, provided risks are properly managed. He also stressed the need for clear crypto regulations. Trump continued pressuring the Fed, criticising its indecision facilitating bullish trends for crypto markets. On this news, Bitcoin gained 3.0%.

Despite this rebound, Bitcoin remains at a crossroads. A potential correction to $80,000–90,000 could take place before the next major rally in April–May. Alternatively, BTC may continue its uptrend without a significant pullback. February will be key in determining the path.

Cardano (ADA) is down 5.0% this week to $0.9303, underperforming the broader crypto market, where Bitcoin (BTC) fell 1.9% to $102,534. The entire market faced sell-off pressure after U.S. President Donald Trump threatened Colombia with tariffs over its initial refusal to accept deported citizens. The decline was further fueled by concerns over China’s DeepSeek R1 chatbot, which rattled the generative AI industry.

While stocks of AI developers are now recovering, and the crypto market is showing signs of a rebound, Cardano remains weak after falling below the key $1.0000 support level. Despite ongoing network development, including the Plomin hard fork scheduled for Wednesday, these factors are unlikely to reverse ADA’s downtrend in the short term.

If broader market sentiment doesn’t improve, Cardano could continue declining toward the $0.8000 support level.

Ironically, I was exactly that unlucky and four-eye chowder head who just wrote a cream puff piece of paper praising incredible growth of NVidia stock right before the weekend, which was followed by an epic price plunge on Monday. Well, let me laugh at myself for a while to make it better and then draw first conclusions from what is happening. And here I am going to get the assistance of common sense. The AI darling NVidia tumbled about 17% in the blink of an eye to shed some $590 billion in market cap, most in Wall Street history. This record loss has been quickly replicated by other AI businesses from NVidia's close circle like Broadcom (AVGO), Oracle (ORCL), Micron Technologies (MU), as well as the Japanese SoftBank Group (TSE), which is one more major investor into Stargate project to build advanced data centres in the U.S. All that craziness took place because a Chinese guy with his friends had eaten a bat or a diseased pangolin. Oh no, by the saints, I must have got it wrong. This is not a legend telling about the origin of coronavirus. Today we have a story of how a small group of smart Chinese guys who spent $6 million for their successful start-up DeepSeek to cast doubt over all heavy trillions of investments in the global AI infrastructure and investigations that have been done before those great thinkers. It was widely reported that DeepSeek represented the best-performing open-source model, also exhibiting competitive effects against frontier closed-source models including ChatGPT, OpenAI and other generative pre-trained transformers (GPTs) by Google, Meta, Microsoft etc. I have no doubt that DeepSeek guys are all givers and great people. But forgive me if I question the rest of the stuff. Let's start with the fact that the experimentalists from DeepSeek used only NVidia chips when doing their work, and not components of their own production or from some other chip manufacturer. Training the model allegedly required 2,048 NVidia H800 GPUs, costing around $50 million. Comparable OpenAI chatbot models may cost hundreds of millions of dollars to build and test. H800 is a legal export version that NVidia made by slowing down its faster H100 chip after strict U.S. regulations were put in place to stop selling their coolest technology to China. And the H100 is not the latest advance already as there is Blackwell chip to offer up to 4x faster training and 30x faster inference than its predecessor H100.

If so, then it turns out that several dozens of Chinese eggheads repeated Western records, when using chips with lower performance and spending a hundred times less money to generate an AI-based feature. From this mass media concluded that now a lower total quantity and poorer quality of chips will be needed in principle for advanced AI tasks, so that revenues of NVidia and other AI-related firms will not be as huge as everyone in the market thought. It may be a small thing, but the DeepSeek startup is reportedly co-financed by the Chinese hedge fund High-Flyer, which has access to 50,000 of NVidia's original H100 GPUs. It's hard to tell if these H100 GPUs were involved in the work or not, and any version can be broadcasted later. They can't disclose the real truth about skipping U.S. export controls on AI chips, as another possible idea. There are also rumours of hidden funding from the Chinese government. But let's not speculate on this. Our idea would be they may use older slow chips, and much fewer chips by NVidia. This means there will soon be a lot of little tricksters who just want to repeat DeepSeek achievements somewhere in their home garage, trying to solve a similar kind of programming task literally on the knee. Just in a way like every college student was trying to become a Bitcoin miner not a long time ago. Here you have a sharp increase in demand for chips, let's say, of the previous generation from NVidia, meaning a demand by smaller customers. Which may even be good for NVidia, while the largest corporations like Microsoft and Meta are only interested in the newest Blackwell chips, and now there will be excellent demand for the older stuff. Mid-range customers may want to have their own supercomputers based on fewer expensive chips to solve more common problems at high quality rather than exclusive ones like it happens with supercomputers right now. A broader learning base will be available to them, adding popularity to chip producers. If I was in NVidia's place, I would be only but happy, as competitive threats for NVidia from Chinese-rooted and other chip producers seem to remain very distant in time.

Furthermore, even if the performance is roughly the same, AI models based on cutting-edge chips will likely be able to leverage more of the text and visual volumes to seek and finally generate their answer, so that cool and more expensive chips would probably continue to produce more digestible or better quality texts, pictures and videos at the output. There will be less hallucinating effects by chat bots. There will likely be fewer erroneous or unacceptable judgments based on the processing of a larger array of human-created information. If mega corporations adopt DeepSeek's simplification of program code or hardware methods, but using much more resources, they will soon create AI generators that are much closer to ideal, which will be more appreciated by consumers. If some produce quality texts in terms of the accuracy and responsibility of their answers, while others periodically slip into childish babble, then the choice is obvious. We will see what will happen. In a simple problem like "Alice has N brothers and X sisters, so can you tell me how many sisters does any brother of Alice have?" cheap models may be very good, but in more complex tasks, I think they will be inferior even to o1 by OpenAI, not to mention something that has not been created yet. The difficulties of time necessary for scaling successive models properly should also be considered. Already on Monday afternoon, DeepSeek could not withstand new registrations of free users on the network.

It's like comfort or business class taxis. Many people use a comfort class, although there is a cheaper economy class. BMW or Audi seem to be better cars than Renault or most Chinese brands, IMHO, but not everyone prefers Renault, and rather takes out a loan to buy a more expensive car. Although there are low-cost airlines, most people continue to fly regular airlines that offer more services, and extra-class airlines like Emirates or Turkish Airlines also have a lot of customers. In the case of high-quality chat bots, we are talking about a much more budget-friendly service, so that many will choose quality if the difference is noticeable, don't you think so? Because AMD makes cheaper but less useful chips, NVidia has not lost its market share so far, but on the contrary, has increased its expansion. In the same way, there will simply be budget AI products at low prices to promote the services of any small company or just to have fun, and premium products at a slightly higher price for those who strive for more.

What I also like as an NVidia investor is a cool hospitality and willingness to welcome the Chinese project that was clear in the initial reaction of NVidia people. There was not a condescending tone. "DeepSeek is an excellent AI advancement and a perfect example of Test Time Scaling," a NVidia spokesperson told on January 27. "DeepSeek’s work illustrates how new models can be created using that technique, leveraging widely-available models and compute that is fully export control compliant. Inference requires significant numbers of NVidia GPUs and high-performance networking. We now have three scaling laws: pre-training and post-training, which continue, and new test-time scaling”. OpenAI CEO Sam Altman spoke out on DeepSeek’s model, calling it "impressive", "particularly around what they're able to deliver for the price", but OpenAI is planning to deliver better models as "more important now than ever before to succeed at our mission". His firm continues to follow its "research roadmap", while demand for AI is "likely to remain strong", he added in a post on X. It looks more like genuine cheerfulness than putting on a good face when things are going badly. Big players can do more with existing computing power than we previously thought before DeepSeek case, is my conclusion, while smaller players will buy chips to try their best as well.

As for a further market dynamics of NVidia and other "lost" AI shares, the inertia of the fall and some medium-term profits taking out of harm's way, as I suppose, may be able to drag the price of NVidia to the $90+ area, where it already came once under an unfavourable combination of general market factors in early August 2024. But it may not be obliged to reach double-digit figures for the price per share, that's only a possibility, which is negative for shareholders but positive for potential buyers. On January 28, on the pre-market trading, NVidia shares have already added more than 5% to the previous day closing price, given that the prices nearly hit $125, which I consider to be the bottom of the current technical resistance zone, extending from $124 to $128 per share (see the chart). If they ever go further upstairs, which is unlikely to happen right away, then markets will make NVidia rise higher again. This is my basic scenario for now. In the meantime, the uncertainty and the need for investors to think carefully about new information will put some pressure on. And it may even offset the effect of quarterly corporate reports from major techs like Microsoft, Meta and Tesla, which are expected on the night from Wednesday, January 29, to Thursday, January 30.

I can only add here that OpenAI's market value could have fallen, but OpenAI is fortunately not a public company. Other interested parties, like Meta, for example, wisely and timely reduced their expenses on their own chat bots developments, choosing for now to use third-party products to make more complicated services, only winning if the costs for semi-finished products turn out to be less than expected. Likewise, companies that haven't built many of their own data centers and other chip infrastructure but have used the work of others in this field to make their AI features better, like Adobe in programming design or Walmart in smart shopping suggestions and customer preferences' analysis, can win even more.