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European Investors Demand AI Results by 2025 or Risk Losing Patience

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European investors, while optimistic about the potential of generative AI to boost productivity and profits, are growing impatient with companies that have yet to show tangible returns on their significant investments in the technology. Many are becoming more selective, shifting focus from hardware suppliers to firms that are adopting AI solutions, such as RELX and SAP. However, the pressure is mounting for these adopters to demonstrate clear financial gains from their AI investments by next year.

The AI Boom and Shifting Investor Preferences

AI-exposed stocks, which had enjoyed a surge of interest, have been under pressure recently, particularly due to fears of a recession and the rise of low-cost Chinese AI models, such as DeepSeek. Despite the broader market challenges, Nvidia, a key player in the AI space, has seen a 29% increase in its stock price year-over-year, even amid the rollout of DeepSeek, which reduces reliance on expensive chips like Nvidia’s.

In Europe, the trend is evident as investors move away from hardware makers, with stocks like ASM International and BE Semiconductor down 25% and 20%, respectively, since the January sell-off. On the other hand, companies adopting AI, such as LSEG and SAP, have shown more resilience, with only modest declines in their stock prices.

Investor Patience Running Thin

Despite the growing interest in AI, an internal survey by Fidelity in January revealed that 72% of analysts did not expect AI to significantly impact the profitability of the companies they cover by 2025. Many European portfolio managers are adopting a shorter timeframe, warning that companies need to start delivering visible results by 2026 to justify their AI investments.

Steve Wreford, lead portfolio manager at Lazard Asset Management, emphasized that investors will be more forgiving of AI adopters in 2025, when many companies are still in the beta testing phase. However, by 2026, these companies must show a significant impact on their revenues, or investors will begin to lose patience.

The Risk of Overhyped Expectations

The current high valuations of AI-exposed stocks, including SAP and LSEG, which trade at significantly higher price-to-earnings multiples compared to the broader market, only add to the pressure. Analysts like Bernie Ahkong of UBS O’Connor warn that investors will begin questioning these premiums if substantial returns are not seen by the end of 2025.

One of the key concerns in AI investments, as noted by Paddy Flood of Schroders, is whether viable, profitable use cases for AI will emerge. To sustain investment in the sector, concrete applications of AI must be developed—whether in the form of a single “killer” use case or multiple impactful ones. Fabio di Giansante of Amundi, Europe’s largest asset manager, echoed this sentiment, stressing that AI companies need to demonstrate real benefits in terms of top-line growth and margin improvement.

Looking Ahead

With AI stocks trading at premium valuations, 2025 could be a pivotal year. If companies fail to show a tangible impact from their AI investments, it could prompt a reassessment of their valuations. As the market waits for concrete results, the pressure is on AI adopters to deliver on the high expectations that have been set.

DeepSeek Narrows AI Gap with US, Says 01.AI Founder Lee Kai-fu

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China has significantly closed the artificial intelligence (AI) development gap with the United States, with companies like DeepSeek narrowing the divide to just three months in certain areas, according to Lee Kai-fu, CEO of Chinese AI startup 01.AI. Lee, a renowned figure in AI and former head of Google China, revealed in an interview that Chinese firms, particularly DeepSeek, have enhanced efficiency in chip usage and algorithm application, accelerating their progress.

DeepSeek’s launch of an AI reasoning model earlier this year challenged the assumption that U.S. sanctions were hindering China’s AI growth. The model, trained using less advanced chips, was cheaper to develop than its Western counterparts, shaking the global AI industry. Lee pointed out that previously, the gap between China and the U.S. was six to nine months, but now it has narrowed to just three months in some core AI technologies. In specific areas, Chinese companies have even surpassed their Western rivals.

Despite U.S. sanctions on semiconductors, which initially posed challenges, Lee believes that these constraints have driven Chinese companies to innovate. He noted that DeepSeek’s new approach to reinforcement learning—a technology that shows users the reasoning process before delivering answers—demonstrates this innovation, now on par or even ahead of U.S. developments.

Lee also highlighted that China’s tech sector, initially seen as trailing in AI development, rapidly entered the generative AI race after OpenAI’s ChatGPT launch in late 2022. With startups like DeepSeek and 01.AI entering the field, China’s AI capabilities have gained global attention.

Lee’s 01.AI, which he founded in 2023, focuses on practical AI applications rather than developing proprietary foundational models, aiming to help enterprises deploy AI solutions efficiently. The company launched Wanzhi, a software platform, earlier this month to assist businesses in integrating AI technologies, already generating revenue and forecasting substantial growth for 2025.

China’s DeepSeek Releases V3 AI Model, Boosting Competition with OpenAI

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Chinese AI startup DeepSeek has launched a major upgrade to its V3 large language model, DeepSeek-V3-0324, marking a significant step in its rivalry with U.S. tech giants such as OpenAI and Anthropic. The new model, available through the AI development platform Hugging Face, showcases notable improvements in reasoning and coding abilities, setting a new benchmark for performance in the AI space.

Benchmark tests indicate that the V3 model has outperformed its predecessor across multiple technical metrics, solidifying DeepSeek’s growing presence in the competitive AI market. DeepSeek, which has quickly become a key player in the global AI landscape, has been pushing forward with a series of model releases, including the V3 launch in December and the R1 model earlier in January.

The company’s rise is seen as part of a broader trend where Chinese AI firms are intensifying competition with Western companies, offering similar capabilities at lower operational costs. DeepSeek’s rapid development positions it as a formidable contender in the global AI race.