The revelation about DeepSeek AI’s capabilities and costs rattled the US market a couple of days ago. Major semiconductor, power, and other AI-related stocks lost a big chunk of their value during trading, estimated at over a trillion dollars. Nvidia alone lost $600 billion in market cap, the most ever single-day drop in history.
Since that crash, a closer look at DeepSeek AI’s claims has calmed investor nerves. There are questions about the firm’s claims on training costs and even if true, analysts are slowly realizing they may not be as bad for many companies as originally thought. Because the US is involved in an AI race with China, it is unlikely the country is going to stop investing in its AI infrastructure just because it supposedly got beaten at it. In fact, that is all the more reason to start spending more.
Later today, a number of tech companies announced their earnings report. The probability of them being asked questions on DeepSeek AI is quite high. Investors want to listen to what these companies think and for that reason, these earning calls may be more relevant than ever in the market’s history.
To come up with the list of 5 companies that may address DeepSeek AI concerns in their earnings calls today, we only considered Mega Cap stocks that are expected to announce their earnings later today.
A scientist at a computer station, surrounded by a neural network of artificial intelligence code.
5. Microsoft Corporation (NASDAQ:MSFT)
Microsoft Corporation is a provider of computer software, devices, services, and solutions operating through intelligent cloud, productivity & business processes, and more personal computing segments. The company supplies its products through retail stores, digital platforms, Original Equipment Manufacturers (OEMs), and resellers.
Over the last year, MSFT stock has underperformed the market despite its dominance in AI. It is the strong balance sheet and the recurring revenue that helps the stock stay afloat even in tough times. Its cloud business as well as its AI initiatives will be in focus when the earnings are announced later today. A 10% topline growth is expected, but that is not something investors will be looking at later today.
Capital Expenditure will continue to be a focus point. The spending on AI infrastructure alone is expected to cross $80 billion this fiscal year. Microsoft has a unique advantage where it can integrate its AI advancements into existing enterprise workflows and doesn’t really have to look for a customer, they are already there. The DeepSeek AI threat doesn’t exist for Microsoft. Even if the model goes mainstream, a good chunk of the resulting training for users will most likely be implemented on MSFT’s cloud network in the US. The company’s dominance in Agentic AI is also unlikely to be affected by what DeepSeek currently has to offer. Having said that, it will be interesting to see what the management has to say about these developments at the earnings call later today.
4. Meta Platforms Inc. (NASDAQ:META)
Meta Platforms Inc., a technology company develops products that help people to connect with others through PCs, wearables, mobile devices, and virtual reality headsets. The company operates through reality labs and a Family of App segments. The stock is up 15% YTD and 8% in the last 5 trading days, clearly showing the investor expectations from today’s earnings.
While AI is obviously one factor in this optimism, there’s another thing that could take investors by surprise. According to a recent report, META’s CTO Andrew Bosworth has claimed that Reality Labs, a division that makes VR and AR products, is set to beat all expectations for 2024 by a huge margin. If this happens, META’s AI plans will take a different turn, as the monetization of AI will become even easier for the company.
A reminder of course that META was one of the few companies that saw a measurable return on its AI investments in dollar terms as its advertising technology improved massively. This advertising demand is expected to stay strong in the quarter in question as well, making META’s decision to invest $65 billion in AI in 2025 an attractive proposition for investors. This spending will be questioned at today’s earnings call and the management’s answers will be interesting to listen to.
3. Tesla Inc. (NASDAQ:TSLA)
Tesla Inc. is a developer, lessor, and supplier of energy generation & storage systems and electric vehicles. It operates through energy generation & storage and automotive segments. The company’s stock more than doubled in less than a month leading up to the US presidential elections. However, it has traded downward since, and after a rather disappointing deliveries report earlier this month, all eyes are now set on the earnings.
The market sentiment has now turned against Tesla. Many believe that Trump’s second term won’t be beneficial for the car maker. However, it can be argued that Trump’s potential anti-EV policies are already priced into 2025 delivery expectations. Elon Musk downplays the delivery numbers anyway. He is now focused on AI and robotics and that’s what will be the center of attention at today’s earnings call.
Elon Musk has expressed his opinion on the DeepSeek AI saga, saying he is not impressed by the questionable claims. Moreover, analysts believe Tesla’s unique position to implement AI in autonomous driving and robotics gives it the ability to offer ‘real-world’ applications, something that’s not a done deal for the many AI models currently in use, including DeepSeek.
2. ServiceNow Inc. (NYSE:NOW)
ServiceNow Inc. is a cloud-based software company that provides automated business process management solutions for businesses. It operates the Now Platform for process mining, AI, performance analytics, ML, end-to-end digital transformation, and other development tools. While other AI stocks took a beating, NOW took the other direction and is up 5% in the last 5 trading days.
NOW stock was unfazed by the DeepSeek AI news because it is one of those few companies that have successfully monetized AI, so it doesn’t really matter if someone comes up with a better model. The company’s Now Assist platform launched just over a year ago has garnered 44 clients with annual contract values worth at least $1 million. The company has also added security and procurement to their suite of offerings which should further drive up the demand.
ServiceNow’s leading position in offering Agentic AI solutions is likely to help the company ignore all the noise about AI spending. 2025 will be about Agentic AI and that’s the reason the stock keeps going up. It will be interesting to see if the management has anything to say about DeepSeek, though the Chinese AI model hardly impacts the company’s unique positioning in the AI world.
1. International Business Machines Corporation (NYSE:IBM)
International Business Machines Corporation is a global integrated services and solutions provider that operates through financing, consulting, infrastructure, and software segments. When IBM reports its Q4 earnings later today, there will be multiple headwinds that analysts will have their eyes on. For example, the company is expected to report considerable forex pressure during the quarter and its guidance for growth in the Consulting segment may disappoint.
Software and AI business will more than cover for the headwinds though. IBM has been an underperformer for most of the last 10 years but things finally seem to be falling in place for the tech giant. The expected 14% YoY growth in operating income is a reflection of that improvement.
The stock is trading at 22 times forward earnings and about 14 times TTM free cash flow. At these valuations, the stock looks undervalued. Future developments in both AI and quantum computing are likely to improve the company’s valuations, though a lot of it will depend on what the company says about its 2025 plans at today’s earnings call.
IBM is not on our latest list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 56 hedge fund portfolios held IBM at the end of the third quarter which was 54 in the previous quarter. While we acknowledge the potential of IBM as a leading AI investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is as promising as IBM but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.
