Seek .(US:SKLTY)2025-02-09 04:54Summary of Key Points from the Equity Research Report Industry and Company Overview - Industry: AI and Software - Company: DeepSeek, a Chinese AI startup known for its reasoning model DeepSeek-R1, which competes with OpenAI's models Core Insights and Arguments 1. DeepSeek-R1 Performance: DeepSeek-R1 is a reasoning model that generates a Chain of Thought (CoT) to enhance response accuracy, showing robust performance at a significantly lower cost compared to OpenAI's o1 model, with API output costs being 96% cheaper [3][4][22] 2. AI Application Monetization: The introduction of DeepSeek-R1 is expected to accelerate AI application monetization, particularly in logical reasoning, which has been a limitation for previous domestic models. This model's low token costs will reduce AI training and inference costs, enhancing R&D efficiency for software companies [4][24][28] 3. Focus on AI Agents: The monetization of AI agents is gaining traction, with several US companies leading the way. Chinese software companies are also launching localized AI agents, which are expected to contribute significantly to revenues in the second half of 2025 [5][29] 4. Investment Recommendation: A "Buy" rating is maintained for Sangfor Technologies, which is well-positioned to benefit from the growing AI application market due to its hyper-converged infrastructure business [6][36] Additional Important Insights 1. DeepSeek's Engineering Innovations: The model utilizes pure reinforcement learning and incorporates cold-start data, which enhances its reasoning capabilities and reduces training costs to approximately USD 6 million compared to OpenAI's USD 500 million [12][22][21] 2. Developer Adoption: Since its release, DeepSeek-R1 has gained significant traction among developers, surpassing Llama 3 in GitHub stars, indicating a growing interest and adoption in the developer community [27] 3. Market Positioning: DeepSeek's model addresses critical industry pain points, such as high costs and insufficient reasoning capabilities in existing models, making it more accessible for developers and enhancing the potential for diverse AI applications [24][25][28] 4. AI Agents in China: Various Chinese companies, including Kingsoft Office and DBAPP, are integrating DeepSeek's models into their AI products, indicating a trend towards the adoption of advanced AI solutions in the domestic market [31][34] Conclusion The report highlights the significant advancements made by DeepSeek in the AI sector, particularly with the launch of DeepSeek-R1, which is set to transform AI application monetization and enhance the capabilities of software companies in China. The ongoing development and adoption of AI agents further emphasize the potential for growth in this industry.