Last month, a new artificial intelligence (AI) model emerged and made headlines in the markets for its effectiveness and low cost. Chinese company DeepSeek said its AI chatbot performed similarly to ChatGPT and that it cost less than $6 million to develop, causing many to wonder whether tech giants are spending effectively when it comes to AI.
One company that falls into that category is Alphabet (GOOG -0.26%) (GOOGL -0.38%), which owns Google and has been developing its own chatbot, Gemini. But despite the alarm bells that DeepSeek has set off in the markets, one top Google executive doesn’t appear all that concerned.
Why DeepSeek’s model may not be a huge concern for Google, for now
Demis Hassabis is the CEO of Google DeepMind, which is involved with AI development at the tech company. Hassabis admits he was impressed with the DeepSeek AI model, but he also points out that it doesn’t possess any game-changing abilities. “Despite the hype, there’s no actual new scientific advance,” says Hassabis, trying to put into perspective just what the launch of DeepSeek might mean for the tech sector.
The big news around DeepSeek wasn’t that it was significantly better or more advanced than ChatGPT or Gemini, however. It was that a relatively unknown Chinese company, which is less than two years old and has around 200 employees, was able to catch up to big tech giants and develop an AI model at a much lower cost. That’s the big takeaway from this — that other tech companies that haven’t been investing heavily to AI may not necessarily be at a huge disadvantage; they can now simply build off DeepSeek’s open-source model.
Should Alphabet investors be worried about DeepSeek?
DeepSeek’s AI model itself doesn’t pose a huge threat to Gemini and other chatbots. Governments around the world have already banned it, or are in the process of doing so, because of privacy concerns. So while it may be a possible alternative to ChatGPT and Gemini, it may not end up being widely used.
What Alphabet investors should be worried about, however, is whether the massive $75 billion Alphabet plans to invest in capital expenditures this year, as it focuses on AI development, will be money well spent. It’s a big increase from the $52.5 billion the tech company spent on capital purchases in 2024.
A more advanced Gemini chatbot may not be enough for Alphabet investors. What could be essential in helping push it higher is how well Alphabet is able to turn its investments into significant growth catalysts, perhaps by offering enhanced, AI-powered YouTube or Google Search capabilities that it can monetize.
Even if DeepSeek may not necessarily be a big worry for Google, its ability to quickly bring a competitive product to market hasn’t gone unnoticed in the markets. And that will put more of a spotlight on AI-related spending, which could have investors demanding to see results and a payoff from those investments sooner rather than later.
Should you invest in Alphabet’s stock today?
Alphabet is a top tech company to invest in, and its products and services may get a big boost from AI. But getting to that point may be a bumpy ride for investors. I wouldn’t be surprised to see tech companies start to scale back on spending and reduce headcount in an effort to respond to investor worries about heavy AI spending.
When enthusiasm is strong and investors are bullish on AI, the spending can be easier to justify. But with investors concerned, especially in light of how advanced the DeepSeek AI model is, it may not be as easy for Alphabet and other tech companies to prove to investors that all their spending on AI is wise.
If you’re a risk-averse investor who isn’t planning to hold on for the long haul, you may want to sit on the sidelines for now. Given how hot AI stocks have been in the past year, it’s possible a correction is coming soon. Alphabet can still make for a good long-term investment, and it trades at a reasonable 23 times its trailing earnings, but in the short run, there could be significant volatility.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet. The Motley Fool has a disclosure policy.
