Last week, China artificial intelligence (AI) roiled markets by unveiling significant AI advances at a low price point and using arguably antiquated semiconductor technology.
Predictably, that news sparked a sell-off, albeit temporary, in some of the well-known technology stocks residing in ETFs like the Invesco QQQ Trust (QQQ ) and the Invesco NASDAQ 100 ETF (QQQM ).
Assuming DeepSeek is a credible threat to equivalent U.S.-developed AI platforms, there could actually be benefits for some QQQ/QQQ member firms. For starters, companies residing in the ETFs could be compelled to rapidly up their efforts. That’s something President Trump has said they should do. Second, domestic AI enablers and adopters could become more judicious regarding research and development and spending, opting to focus on areas that are most likely to bear fruit rather than taking potentially risky broad-based approaches.
DeepSeek Could Be Motivator for QQQ Holdings
The U.S. and China have long been in technological competition. DeepSeek represents the latest chapter in that saga. Response by QQQ/QQQM holdings is likely to prove pivotal to long-term investment outcomes.
“DeepSeek alleges to have been able to produce competitive results using significantly fewer and less advanced semiconductors to build its AI model (R1),” noted Fitch Ratings. “This calls into question the necessity of well over $50 billion of quarterly hyperscaler investments in AI infrastructure. Fitch has been anticipating an inevitable pause to AI infrastructure spending in the medium term as returns on AI business models lag investments, resulting in potentially deeper or longer inventory digestion than in past cycles.”
The research firm also noted some QQQ/QQQM holdings could benefit as AI adopters turn to more sustainable spending models.
“Penetration in the more fragmented chip market supporting inference models underpins revenue growth prospects for Advanced Micro Devices Inc. and Intel Corp. (BBB+/Stable), should the latter achieve technological parity with advanced producers over the next couple of years. This is less favorable for market leader NVIDIA Corp., which is more dominant for training,” adds the ratings agency.
Fitch also had bullish comments on Broadcom (BBB/Positive) and Marvell (BBB/Stable), both of which are QQQ/QQQM holdings, noting that both chipmakers are less vulnerable to pullbacks induced by AI headlines than some of their rivals.
“Broadcom is less susceptible to any pull-back of hyperscaler spending, as its business is broadly diversified, with 40% exposed to software and another 25% exposed to Apple Inc. devices. Fitch’s rating cases for both companies incorporate significantly more conservative earnings assumptions relative to management guidance and consensus estimates, based on expected slower AI infrastructure spending,” concluded Fitch.
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