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The recent performance of the Magnificent Seven trade has stirred concerns, primarily due to underwhelming guidance and ambitious capital investment plans. Over the past week, the Roundhill Magnificent Seven ETF (MAGS) experienced a decline of 2.4%. This downturn was significantly influenced by Alphabet’s (GOOG, GOOGL) notable drop of 9.2%, along with Amazon’s (AMZN) 3.6% decrease.
This trend is the latest challenge facing the technology sector, which is still adjusting from the recent sell-off triggered by the introduction of DeepSeek. Many investors reacted nervously to the emergence of a more affordable open-source large language model, causing ripples across the market.
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Despite the initial apprehension surrounding DeepSeek, industry leaders advocate for a more optimistic perspective. Experts suggest that developments from DeepSeek could serve as a significant catalyst for the technological landscape. A former OpenAI employee suggested the market should view the advancements as a momentous opportunity that could bolster innovation and adoption in artificial intelligence.
Zack Kass, who previously led OpenAI’s Go-To-Market strategy, expressed excitement about these advancements, stating, “DeepSeek’s R1 model represents a major breakthrough. It’s essential to celebrate scientific progress, and decreasing costs for vital resources is a positive trend.”
This sentiment resonates among leaders in major tech firms. On an earnings call, Alphabet’s Sundar Pichai referred to his company’s accomplishments as “tremendous,” while Meta’s Mark Zuckerberg mentioned the intriguing innovations DeepSeek has introduced, noting they are still processing the implications.
For investors looking to capitalize on the next phase of AI growth, it may be prudent to look beyond the usual giants in cloud computing and semiconductor manufacturing like Nvidia (NVDA) and AMD (AMD).
One emerging strategy focuses on AI network stocks, which play a crucial role in providing the necessary infrastructure for AI applications. The demand for robust networking solutions is anticipated to surge as models like DeepSeek’s R1 escalate computational requirements. In a recent note, Chun Him Cheung from Bank of America suggested that a reduction in computing costs could facilitate greater AI adoption, leading to strong demand in the sector.
Tony Wang, a portfolio manager at T. Rowe Price focusing on science and technology equities, believes that companies in this sector are “well positioned” to benefit from these trends. Likewise, Ruben Roy from Stifel emphasized the potential upside, highlighting that DeepSeek’s R1 model could escalate global demand for high-speed networking infrastructure.
Wang pointed out that the networking layer is where significant bottlenecks exist in delivering AI infrastructure, calling for enhanced innovation. “The push for more advanced networking solutions will be crucial as data demands continue to evolve,” he said.
The need for cutting-edge networking capabilities is becoming increasingly evident. Roy identified companies like Ciena (CIEN), Coherent (COHR), and Celestica (CLS) as key beneficiaries of the impending demand as “AI workloads become more efficient.”
Roy explained, “The underlying infrastructure for data movement is becoming increasingly complex, and as interface speeds increase, the challenge of efficiently routing data is also growing.” He noted that Ciena is witnessing heightened demand from hyperscalers as AI-related data flows from data centers into broader enterprise and consumer applications.
Moreover, Celestica is poised to benefit significantly by producing switches and servers for hyperscalers, especially as the industry transitions toward more customized computing solutions.
Also optimistic is Meta Marshall, a research analyst at Morgan Stanley, who recently expressed confidence in the AI networking company Arista Networks (ANET). Ahead of its earnings release scheduled for February 18, Marshall noted that following the DeepSeek-fueled sell-off, the stock has become increasingly appealing. She has issued an Overweight rating on Arista’s shares.
Source
finance.yahoo.com