Key insights
- US AI firms, including major players like OpenAI, are facing increased competition from Chinese companies such as Deepseek, which are aggressively cutting prices for AI services. This pricing pressure, coupled with US firms increasingly opting for cheaper alternatives, suggests a potential loss of pricing power for US AI companies. This could lead to downward pressure on future earnings growth, especially for companies nearing IPOs, potentially impacting their valuations and profitability.
Source is the South China Morning Post so take that with a grain of salt should you choose to, but the coordinating articles show Deepseek aggressively bringing down AI customer pricing at the same time as more US Firms are choosing Deepseek over OpenAI/Anthropic e.t.c. due to increasingly advantageous pricing gaps that favor Deepseek.
If these companies that are nearing their IPOs are already losing pricing power and burning cash hand over fist at current rates, that feels like there is going to be a ton of downward pressure on forward-looking earnings growth before they even have become profitable at all, and could be very painful for these companies in the near term.