Since the emergence of the DeepSeek-R1 open-source AI model, which combines "low cost" with "high performance," both Silicon Valley and Wall Street have experienced a seismic shiftThis robust generative AI application has led to a global surge in deployment, as investors eagerly flock to software companies poised to yield significantly stronger performance figures in the wake of the AI crazeCompanies that exhibit high-growth EPS performance are expected to mirror the astronomical trajectory of Nvidia's shares, which skyrocketed by an unprecedented 1000% since October 2022.

As it stands, tech giants such as Amazon, Nvidia, and Microsoft have integrated DeepSeek-R1 into their cloud computing platforms, enabling users to access this groundbreaking AI modelMeanwhile, leading Chinese firms like Alibaba, Tencent, and JD.com, along with China’s main telecommunications operators—China Telecom, China Unicom, and China Mobile—have also adopted the DeepSeek modelThe software stocks positioned at the forefront of this "DeepSeek Wave" have demonstrably outperformed the broader market benchmarks, along with the semiconductor stocks that have traditionally led market rallies in 2023.

Looking ahead, the application of AI technologies is anticipated to accelerate, particularly with DeepSeek spearheading a transformative shift toward "extremely low-cost AI training and inference." This new paradigm significantly simplifies the deployment workload associated with large AI modelsThe implication is twofold: a wave of generative AI applications across sectors, both B2B and B2C, stands ready to explode in popularity, potentially yielding substantial productivity gains for humanity as a wholeIt is this transformative potential that has attracted global funds toward software stocks, with particular emphasis on Chinese giants that demonstrate notable valuation advantages.

DeepSeek-R1’s introduction marks a defining moment in the open-source AI model space, heralding an era where AI training and inference are increasingly accessible due to innovations in cost efficiency and computational architecture

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Recent earnings reports from various tech firms like Meta, Palantir, SAP, and AppLovin reveal robust AI revenue and optimistic outlooks, further cementing global institutional investors' belief in a "long-term bull market narrative" for software stocksThis optimism reflects a cycle of increased share prices for major software players as they anticipate their AI revenue streams will flourish in the coming yearsInvestors are betting on the emergence of next-generation AI applications that will surpass DeepSeek-R1 in performance but remain cost-effective, while also predicting an explosion of "AI agent" applications fueled by the DeepSeek model.

AI application software serves as a pivotal vehicle for integrating influential AI models into everyday life, drastically enhancing operational efficiency for businesses and boosting productivity for individuals in both work and learning contextsThis domain encompasses a vast array of software products harnessing AI, particularly generative AI, capable of solving real-world problems through capabilities in natural language processing, predictive analytics, and the automation of routine tasksThese AI-driven solutions provide palpable benefits, ranging from streamlining workflows to optimizing overall efficiency.

Upon observing the current trajectory of AI development, the focus has shifted predominantly toward "generative AI application software," such as DeepSeek, ChatGPT, and other globally renowned solutionsBuilding upon these foundations, AI functionality evolves from a mere question-and-answer interface to being capable of independently executing complex tasks through AI agents, such as Salesforce's Agentforce 2.0 and the AI Agent embedded within Microsoft's Dynamics 365 seriesThese two trends signify not only significant advancements in AI but also herald the future overhaul of AI applications across numerous sectors.

As the cost of AI training falls dramatically under DeepSeek's leadership and token inference costs diminish, the penetration of AI agents and generative AI software into multiple industries is poised to accelerate

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This explains Wall Street's continued bullish stance on software stocks, even amid significant fluctuations in the Nasdaq 100 indexThe emergence of AI agents may transform them from supplemental informational tools into highly intelligent productivity enhancers by 2030.

AppLovin has exemplified the explosive demand for AI application softwareRecently dubbed an "AI super stock," AppLovin demonstrated astounding financial performance in its Q4 2024 report, with its stock soaring by an astonishing 700% over the yearFollowing its earnings announcement, AppLovin shares surged, reflecting a 24% increase at one point nearing 40% within a short windowThis remarkable ascent can be attributed to the soaring demand for AppLovin's generative AI-powered online advertising marketing solutions, which adeptly navigates massive ad auctions to effectively align supply and demand.

AppLovin's cutting-edge AI advertising engine, AXON 2.0, has facilitated the development of generative AI-enhanced online advertising solutions, delivering "generative AI + advertising" services targeted at both advertisers and developersWith deepening AI capabilities across foundational hardware and large model scales, AppLovin positions itself to provide comprehensive AI-driven marketing solutions capable of enhancing user engagement, monetization strategies, campaign creativity, and analytical insightsIn its latest earnings return, AppLovin reported revenues of $1.37 billion for Q4, reflecting a 44% year-over-year increase, with net profits soaring to $599.2 million, a remarkable increase of 248%. These numbers translate to an earnings per share metric of $1.73, comfortably beating market expectations of $1.26.

Meta Platforms, which commands an audience of 3 billion users through Facebook and Instagram, has also benefitted from a surge in stock value driven primarily by its advancements in "generative AI and advertising." Following the DeepSeek-R1 announcement, the dynamics underpinning the "Big Seven" tech stocks have fundamentally shifted

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Investors are increasingly questioning whether the massive, cash-burning AI expenditure plans of these tech titans remain justifiedBeyond Meta, the stock performances of other major players have lagged behind the S&P 500, acting as a sizable drag on wider market growth.

In a realm that Meta depends on—digital advertising—the integration of a powerful open-source AI model alongside robust generative AI-enabled tools is projected to furnish advertisers with enhanced reach and engagement analytics, thereby invigorating Meta's advertising ecosystemVarious research reports indicate active advertising campaigns on Meta’s platforms are likely to see increases in expenditure, positioning the company for sustained growth as its proprietary AI ecosystem continues to evolve and expand.

On the other front, Palantir, specialized in combining "AI and data analytics," has experienced notable gains, with its stock rising over 40% after its February earnings reveal and nearly 340% over the yearThis rapid ascent in stock price reflects investor enthusiasm for AI innovations, spurred by a growing base of commercial and governmental clients utilizing Palantir's AI-enhanced analytics ecosystemsPalantir's generative AI platform, AIP, integrates seamlessly into its existing tools, allowing clients to easily access advanced functionalities through conversational queries, thus effectively enabling enhanced operational efficiency.

Palantir’s AI-driven data analysis platform not only commands a significant presence within U.S. national security but is also steering robust growth rates within commercial marketsIts software is deeply embedded in virtually every military branch of the U.S. and extends to alliesAs demand for commercial AI solutions accelerates, Palantir leads a transformation defined by the emergence of robust AI-driven solutions rather than reliance on high-performance AI chips.

Meanwhile, Salesforce, an established player in the software space, is keenly aware of the booming demand for its Agentforce 2.0 AI product, prompting plans to bolster its workforce with specialized product personnel to facilitate sales

In a balancing act of expansion and contraction, Salesforce is hiring even as it implements layoffs, signaling the escalating demand for AI applications, particularly its latest agent solutionsThis ambition reflects Salesforce's broader intention to prioritize AI products in its ongoing development strategy.

Even traditional pillars like SAP have reported significant growth, with its cloud computing business seeing a 27% year-over-year riseThis increase, amounting to €4.71 billion (approximately $4.9 million), typifies the robust demand for AI solutions, underscoring a shift where numerous enterprise-level clients are now adopting SAP's AI applicationsSuch demand positions SAP as a key player in a rapidly evolving global landscape, culminating in its title as the most valuable tech corporation in Europe.

Underpinned by DeepSeek's impact, a sweeping revolution in AI applications is expected to usher in a golden age for software giants globallyThe low cost, efficiency, and performance parity with leading models fostered by DeepSeek arise from meticulous engineering, refining every stage of large model training with a focus on "extreme engineering" and fine-tuning, pivoting from traditional supervised learning towards pure reinforcement learningThis paradigm shift radically reduces the costs associated with large model deployment and computational efficiencyInnovations like FP8 mixed-precision training, DualPipe parallel communication, and Mixture of Experts (MoE) load balancing enhance the training process by maximizing hardware resource utilization and minimizing unnecessary computational waste.

With training costs under $6 million, and performance on par with major players like OpenAI's models, DeepSeek sets a new standardIts pricing model for token output contrasts sharply with competitors, offering token outputs at $2.19 per million compared to the staggering $60 charged by OpenAIThe advent of DeepSeek’s low-cost paradigm ushers forth a wave of affordability and access, ensuring that AI training and application inference costs will continue to decline, driving generative AI solutions and agents into every sector.

As organizations scramble to enhance efficiency and minimize operational expenditures, the role of AI agents becomes ever more pertinent

Capable of automating redundant tasks, conducting thorough data analyses, and providing real-time reporting, these agents elevate productivity across industriesInvestment priorities focusing on AI agents signify this trend, enabling corporate routines to accommodate unprecedented levels of efficiency.

A recent report from MarketsandMarkets posits that the market for AI agents will surge from a mere $5.1 billion in 2024 to an anticipated $47.1 billion by 2030, reflecting a staggering annual growth rate of 44.8%. Integrating AI agents within internal automation tools will streamline operations while reducing human error occurrences—evidencing the remarkable potential of AI to redefine corporate workflows.

Moreover, a Bloomberg analysis predicts that revenue in the generative AI market will exceed $1.3 trillion by 2032, ballooning from an estimated $40 billion in 2022. This reflects ample opportunities for stakeholders aiming to capture value within an expanding realm of AI technologies.

Turning the spotlight to 2025, a focal point emerges on Chinese software giantsGiven their current evaluations, which remain relatively low compared to their U.S. counterparts that are experiencing stellar performances, Wall Street analysts perceive immense potential for gains driven by DeepSeek’s integration across various applications.

Prominent research institutions have expressed bullish sentiment for software stocks with a particular enthusiasm for Chinese technology titans like Alibaba and TencentThe landscape shifts dramatically due to the low barriers to entry in AI applications stemming from the DeepSeek model, facilitating widespread enterprise deployment at competitive price points.

Goldman Sachs, acknowledging the aftereffects of the DeepSeek wave on equity markets, has reiterated its bullish outlook on the Chinese market, forecasting a staggering rise of 28% in the MSCI China IndexThey anticipate that companies situated in the “software technology” sphere are likely to outpace broader market performance metrics.

A Bank of America analysis underscores the transition in market focus from semiconductor giants like Nvidia to the next phase of investments in AI generative software stocks

This indicates a radical evolution in investment strategy as the sector pivots towards software companies innovating in generative AI and business applications that optimize operational infrastructures.

As Alibaba and Tencent establish themselves as frontrunners in leveraging cutting-edge AI models and extensive cloud capacities, their potential to rival behemoths like Amazon AWS and Microsoft looms largeGiven their current market capitalizations—$280 billion compared to Amazon and Microsoft’s valuations at $2.45 trillion and $3 trillion, respectively—the possibilities are staggering.

The landscape painted by DeepSeek’s advancements heralds a significant decline in overall costs within the AI supply chain, creating abundant opportunities for companies engaged in AI solutions across various sectors in ChinaThis creates an environment ripe with potential partnerships and collaborations as leading firms turn to the transformative properties of AI solutions.

The arrival of killer applications in the form of AI agents is set to offer significant advantages for Chinese cloud giants like Alibaba, Tencent, and JD.comBoth early software development ecosystems and cloud computation resources are integral in ensuring the deployment of innovative AI tools that drive productivity gains across industriesThis growth will rely heavily on the robust infrastructures provided by these cloud giants.

UBS's latest market analysis underscores the potential and value of Chinese tech companies, drawing parallels with their American counterpartsIts comprehensive comparison list, which likens various tech projects, reinforces the belief in Chinese software stocks as pivotal beneficiaries of the DeepSeek trend.

The forecast underscored by UBS indicates remarkable valuation boosts typically associated with AI growth cycles can propel stock performances to outperform broader market returnsThe parallels drawn from previous technological advancements such as 4G, 5G, and cloud computing illustrate how demanding market conditions favor standout AI solutions.

Since the unveiling of DeepSeek’s R1 model, AI-related stocks in China have increased by 15%, outpacing the MSCI China Index's growth of 9%. As UBS indicates, the market atmosphere for AI in China may still be nascent, especially for promising software stocks like Alibaba that continue to thrive in a burgeoning ecosystem.

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