Analyst Explains Why Microsoft Stands To Gain From DeepSeek's Rise: Retail Buys The Argument

After the DeepSeek storm ravaged tech stocks on Monday, an analyst picked Microsoft Corp. (MSFT) as a potential winner, and retail sentiment toward the stock remains buoyant.

Morgan Stanley analyst Keith Weiss said DeepSeek’s V3 and R1 releases suggest model improvements could be bending the generative AI (GenAI) cost curve. 

According to the analyst, GenAI input costs for software may decrease, boosting product adoption.

The V3 reportedly was trained in two months using about 2,000 Nvidia Corp. (NVDA) H800 chips.

He noted that the software vendors in his coverage universe are building AI solutions and not reselling models, which lowers revenue risk from cheaper models.

Outlining his bullish thesis for Microsoft, Weiss said the company is already focused on its “Phi” small-language model strategy, underlining its emphasis on pursuing cost-efficient models over maximizing training compute.

The analyst noted that Microsoft is not directly tied to OpenAI’s success, and their goals weren’t identical. He expects the estimated $5 billion Azure revenue from OpenAI to come under pressure due to the DeepSeek threat. 

That said, the analyst sees the build-out of enterprise applications using the foundational models as a far greater opportunity.

Weiss also highlighted the results of Microsoft’s fourth-quarter chief investment officer survey, which found that 41% of the executives said they were already using Azure AI or expect to use it in the next 12 months.

Separately, President Donald Trump reportedly said Microsoft was in talks to acquire Chinese short-video app TikTok.

Microsoft is scheduled to report its fiscal 2025 second-quarter results after the market closes on Wednesday. Analysts, on average, expect the company to report earnings per share (EPS) of $3.11 on revenue of $68.87 billion, up from $2.93 and $62.02 billion in the year-ago quarter.

MSFT sentiment and message volume January 28, as of 12:41 pm ET | Source: Stocktwits

On Stocktwits, sentiment toward Microsoft stock stayed ''bullish’ (71/100), with message volume remaining at ‘extremely high’ levels. 

A stock watcher saw Monday’s sell-off as an overreaction due to a new disruption and believed this would put pressure on U.S. companies to innovate.

Another anticipates a big earnings beat and a stock move past $500.

Microsoft stock traded up 2.26% at $444.38 by mid-session on Tuesday. After a 13% rise in 2024, the stock added slightly over 3% in January.

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