The war of the artificial intelligence (AI) models is heating up. News that Chinese company DeepSeek unveiled an AI model that was just as good as ChatGPT and cost a fraction of the price shook many tech stocks last month.
But there's another Chinese company which says that its chatbot is better than both DeepSeek and ChatGPT: Alibaba Group Holdings (BABA +2.90%). Here's a closer look at what this means for investors and whether it should affect which AI stocks to buy right now.
NYSE: BABA
Key Data Points
Alibaba releases its newest AI model: Qwen 2.5-Max
Last month, Alibaba unveiled the latest version of its AI model, the Qwen 2.5-Max. According to the company, it performs better than DeepSeek's AI model. ChatGPT-4o, and Meta Platforms' AI model, Llama-3.1-405B. Alibaba's shares have been rallying on the news, as having a top AI chatbot to rival the best in the world could unlock a huge growth opportunity for Alibaba whose single-digit growth rate hasn't been all that impressive in recent quarters.
But with the arms race in AI continuing to heat up and still in its early stages, it may be difficult for investors to keep track of which AI model may be the most advanced one. Many top tech companies are investing heavily into AI; which chatbot and model will be the top one could depend on multiple factors.
Integration, accuracy, and privacy could all be key factors to consider
Even if one AI model is quicker, more accurate, or cheaper than another, that doesn't guarantee that the AI stock behind it will be the best one to buy or that it will generate the most revenue.
Privacy concerns related to AI can't be overlooked, which is why cheaper models may not necessarily be the big winners. Multiple countries have already banned DeepSeek's AI model due to privacy concerns. The U.S. government is also looking to put a ban on it for federal devices, not unlike the one it has in place for TikTok. Yet again, the issue comes back to concerns around the Chinese government's ability to access the data.
Another factor to consider is how well an AI model can integrate with existing products and services. Microsoft's Copilot works with the company's Office software, giving users a way to easily tap into its capabilities while they are doing their usual workflows. Alphabet, which has its Gemini chatbot, can potentially have a huge advantage over its peers as it can use AI to enhance Google Search and YouTube, which are already two popular places users go to when looking for answers to everyday questions.
It's not necessarily the case that because one AI model performs better or faster than others it will be the preferred option for users. Plus, one company's AI could be overtaken by a better model in the future. Investors should be careful to temper their expectations as there may not be a sustainable competitive advantage when it comes to building these chatbots.
Which AI stocks should you invest in?
AI can help a company enhance its existing products and services. But whether a chatbot on its own will be enough to generate billions in revenue for a business and be a growth catalyst for years may not be all that likely given how competitive the space is right now.
Rather than chasing which AI model is best, investors may be better off evaluating the companies themselves and deciding which ones have the best growth opportunities overall with respect to AI. Alibaba, Alphabet, and Microsoft, for example, all have robust businesses which could benefit significantly from offering more advanced AI-powered products and services to their customers.
Investing in any of these stocks can potentially be a good move for long-term investors, but it's important to consider their overall businesses and valuations, rather than just looking at the AI models they have today.
