DeepSeek — the Chinese artificial intelligence (AI) lab responsible for market chaos on 27 January — looks set to make AI cheaper and more accessible. This will likely hasten the development of AI-powered platforms and the adoption of this revolutionary technology. Having seen Nvidia and other ‘picks and shovels’ stocks surge, it’s likely time for FTSE 100 companies to benefit.
Let’s not forget that the overarching objectives of AI, at least for businesses, is productivity gains. This means companies should be able to achieve more with fewer resources. Lower headcounts, higher output, and hopefully, stronger earnings.
So, who could benefit? Well, in the long run, I’d expect this revolution to touch every company as AI extends into robotics. However, there could be some near-term winners of cheaper AI, including Sage Group (LSE:SGE) and Experian (LSE:EXPN).
Sage Group
Sage, a leading software company known for its accounting and payroll solutions, has been actively integrating AI into its products. With the advent of more cost-effective AI models like DeepSeek’s — or at least using some of DeepSeek’s innovations — Sage could significantly enhance its offerings without incurring substantial costs. The introduction of its Copilot tool exemplifies this, allowing finance teams to quickly identify budgeting errors and improve efficiency.
Moreover, as AI becomes cheaper and more accessible, Sage can leverage these advancements to further develop its AI capabilities, potentially attracting new customers and retaining existing ones. The company’s recent 20% share price jump following promising full-year results indicates strong market confidence, which could be bolstered by the integration of more affordable AI solutions. This positions Sage well to capitalise on the growing demand for intelligent business tools in an increasingly competitive market.
However, given it trades at 34 times forward earnings, investors may wish to tread with caution. Personally, I think Sage is an interesting proposition, but the valuation coupled with the approximately 15% growth rate isn’t overly tempting.
Experian
Experian, a global leader in data analytics and consumer credit reporting, stands to benefit from the rise of cost-effective AI technologies as well. The company relies heavily on data-driven insights to provide value-added services to its clients. With new models enabling cheaper and more efficient data processing capabilities, Experian could enhance its analytics services significantly.
Moreover, the ability to deploy advanced AI at lower costs and in greater numbers allows Experian to refine its predictive models and improve risk assessment tools, which are essential for financial institutions and businesses alike. As the demand for sophisticated data analytics continues to grow, Experian’s enhanced capabilities could lead to increased market share and revenue growth.
Interestingly, Experian stock trades with very similar multiples to Sage. And at 34 times earnings, even with a decent earnings growth rate of around 15%, investors may want to investigate more before making a decision. Personally, I’m adding Experian to my watchlist, but I’m not buying at the current multiples.
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James Fox has positions in Nvidia. The Motley Fool UK has recommended Experian Plc, Nvidia, and Sage Group Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
