The cost-effective AI development by DeepSeek raises concerns for Singapore’s data centre Reits and tech firms.
The rapid rise of DeepSeek, a Chinese AI company, has made significant waves in the global tech sector, with analysts warning of potential fallout, particularly for firms in Singapore. DeepSeek’s breakthrough in AI technology, which delivers high-performance systems at a fraction of the cost and power consumption compared to competitors, has already impacted major tech stocks. Nvidia, for example, saw a staggering loss of nearly US$600 billion in market value on January 27, marking the largest single-stock loss in Wall Street history.
The effects of DeepSeek’s emergence have not been confined to US markets; Singapore’s data centre-focused real estate investment trusts (Reits) have also felt the pressure. On the same day as the stock market turmoil, Keppel DC Reit experienced an 8 per cent drop, Digicore Reit fell 6 per cent, Mapletree Industrial Trust saw a 2.7 per cent decline, and CapitaLand Ascendas Reit dropped by 0.8 per cent. However, by the end of the trading day, some recovery was noted, with Keppel DC Reit rising 2.87 per cent and CapitaLand Ascendas Reit gaining 1.95 per cent.
DeepSeek’s AI technology, which has gained significant attention on platforms like the Apple Store, is being praised for providing performance on par with OpenAI and Meta, while remaining far more cost-efficient and energy-conscious. This innovation has prompted analysts to adjust their expectations for the broader AI sector, recalibrating both market outlooks and earnings forecasts.
Vijay Natarajan from RHB pointed out that the advancement of DeepSeek has triggered a shift in market dynamics, resulting in a recalibration of earnings expectations across the AI industry. He also cautioned that the recent rally in AI stocks makes these companies vulnerable to profit-taking and short-term corrections.
For Singapore’s data centre Reits, the emergence of more affordable AI development tools, like those DeepSeek is offering, has raised concerns over future demand for high-quality data centres. Analysts, including Xavier Lee of Morningstar, warned that if DeepSeek’s cost-effective AI development claims prove accurate, it could reduce the need for heavy investment in AI infrastructure, thus creating more competition within the sector.
Lee compared the potential shift in investment priorities to Apple and Dyson’s recent abandonment of electric vehicle projects when the market became too competitive. He further noted that companies may begin to question whether the capital expenditure for AI infrastructure is justified.
Despite the volatility in the short term, Natarajan believes that the market’s current correction may be overblown. He stressed that DeepSeek’s innovation is still in its early stages, and its long-term effects remain uncertain.
Beyond Singapore, other global markets have also seen declines in stocks linked to the AI supply chain. Notable examples include the Japanese chip sector and the global data centre Reits market. Shares of ASML, a major Dutch semiconductor player, dropped by 7 per cent, while Taiwan Semiconductor Manufacturing Company’s US-listed shares plummeted by 13 per cent.
Despite these fluctuations, Morningstar’s Phelix Lee remains positive about AI investments in the long term, believing that DeepSeek’s efficiency gains could ultimately support broader AI adoption and foster sustainable growth in the industry.
