Short Call | AI on a budget crashes the high-stakes AI race; Macrotech, 360 ONE

Short Call

What happens when a low-cost disruptor enters a high-stakes race? The tech world is buzzing, but not all for the right reasons. The debut of DeepSeek, an unlisted Chinese AI start-up, has sent shockwaves through markets, triggering a selloff in US tech stocks and putting pressure on Indian electronics manufacturing services (EMS) companies like Dixon and Kaynes Tech. With its groundbreaking cost efficiency, DeepSeek is rewriting the rules of artificial intelligence, and the ripple effects are just beginning.

Devarsh Vakil of HDFC Securities describes it as a "paradigm shift" in AI development. DeepSeek’s success challenges the dominance of trillion-dollar tech giants, proving that cutting-edge AI doesn’t always require sky-high investments.

For Indian IT firms, this could lower barriers to entry, creating new opportunities. The ability to adopt AI solutions more easily could significantly accelerate investments in data centers, a critical need for India, where data consumption accounts for 22-24 percent of global usage but only 2-3 percent of it is stored within the country.

DeepSeek's low-cost model could fast-track this transition, reducing timelines initially expected to span a decade. But for companies like Nvidia, whose growth is tied to the high costs of AI infrastructure, this could signal a rough patch ahead.

Investors are rattled. Shares of Anant Raj, linked to data-center infrastructure, plunged 20% on November 28, as fears of reduced AI hardware demand gripped the market. Nomura points out that big players like Microsoft and Meta may face pressure to justify their massive AI investments in an environment now shaped by cost-efficient alternatives.

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Arindam Mandal of Marcellus Investment Managers points out the sustainability of the current data-center surge is questionable beyond 2026. While this disrupts some industries, companies with diversified portfolios, like TSMC and ASML, could weather the storm.

For traders, adaptability is crucial. Whether backing newcomers using DeepSeek’s innovations or managing the impact on traditional tech giants, the game is still unfolding. As markets digest this seismic shift, one thing is certain-the age of AI is no longer about who spends the most—it's about thinking smarter.

Macrotech Developers (Rs 1,131, +2.5%)

Shares rose on the back of the company's strong Q3 earnings.

Bull Case: Strong pre-sales booking, execution capability to help firm deliver superior growth. Additional incentives on housing in the upcoming budget and future rate cuts may further help growth prospects for the company. Focus on cash flows and geographical diversification in the MMR and Pune should keep its long-term growth trajectory intact.

Bear Case: Several brokerage believe slowing macroeconomic situation and limited visibility on price growth may cap stock price upside.

360 ONE WAM (Rs 1,015, -5.7%)
Acquired B&K Securities; Income Tax Department conducted search operations on IIFL's premises

Bull Case: Motilal Oswal said, "The company’s plans to diversify across client segments (mass affluent) and geography (lower-tier cities) is gaining traction and the global platform has also seen green shoots."

Bear Case: While we agree that the acquisition has a business case, we need more clarity on potential synergy benefits that can make it a strong complementary fit. This transaction does not yet straightaway augment 360 One’s IB/ECM capabilities, as they are still being built and could need further investments in hiring teams, said Kotak Institutional Equities.

(With inputs from Vaibhavi and Zoya)