AI Stocks Poised for Explosive Rally After DeepSeek's Game-Changing Breakthrough.
Analysts predict a rise in AI-focused stocks following DeepSeek's recent breakthrough, despite recent headwinds for major tech players. The Roundhill Magnificent Seven ETF (MAGS) experienced a 2.4% drop over the past week, driven by Alphabet's (GOOG, GOOGL) 9.2% decline and Amazon's (AMZN) 3.6% drop. This follows a larger sell-off spurred by concerns over a cheaper open-source large language model, DeepSeek, which rattled investor confidence.
The setback seems to have subsided, however, as experts suggest DeepSeek’s innovation is poised to be a catalyst, rather than an obstacle, for the AI industry. “DeepSeek’s R1 model is a breakthrough… Being excited about progress in science is something that we should all want, and seeing the cost of a critical resource come down is also something we should want,” said Zack Kass, former head of Go-To-Market at OpenAI.
Big Tech leaders, including Alphabet’s Sundar Pichai and Meta’s Mark Zuckerberg, have echoed similar sentiments, lauding the potential benefits DeepSeek’s model could bring to the industry. As AI technology continues to progress, it may be time for investors to look beyond established hyperscalers like Nvidia (NVDA) and AMD (AMD) to find new opportunities in AI network stocks—those companies providing the vital infrastructure needed to support AI applications.
As DeepSeek’s R1 model drives up demand for computational resources, the need for high-speed networking solutions will likely soar. Bank of America’s Chun Him Cheung noted that reduced compute costs should lead to “wider AI adoption,” creating robust demand. T. Rowe Price's Tony Wang and Stifel’s Ruben Roy agree, citing significant opportunities for growth within the AI networking space. Wang believes these stocks are “well positioned” as the network infrastructure for AI evolves. “We're going to need to see a lot more innovation at that layer,” Wang said.
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Ciena (CIEN), Coherent (COHR), and Celestica (CLS) stand to benefit the most, according to Roy, as the industry looks to overcome the challenges of moving vast amounts of data. Roy highlighted that Ciena is already seeing increased demand from hyperscalers, while Celestica, known for building switches and servers for hyperscalers, will likely capitalize on the trend toward custom chips and compute solutions.
Morgan Stanley’s Meta Marshall is particularly bullish on Arista Networks (ANET). Following the recent sell-off due to DeepSeek, Marshall sees the company’s stock as undervalued and maintains an Overweight rating on the stock ahead of its Feb. 18 earnings report.
For investors eyeing the next AI growth phase, these companies providing the crucial networking infrastructure will be essential players to watch as AI demand intensifies.
