Could DeepSeek Deep-Six Data Centre Credit Ratings?

On January 27, global financial markets suffered a major rout on concerns surrounding the impact of Chinese artificial intelligence startup DeepSeek on the dominance of American companies in the sector. Investors sold off tech stocks amid worries that DeepSeek's seemingly highly cost-effective model could upend demand for AI infrastructure such as semiconductors and data centres. The tech-heavy NASDAQ index dropped more than 3% on Monday, with previously high-flying names such as Nvidia plunging 17%, losing $600 billion in value and other semiconductor-related stocks such as AMD and Broadcom suffering similar losses.

Key highlights from this commentary include:
-- DeepSeek's AI model has raised the prospect that the hundreds of billions of dollars currently committed to building out AI infrastructure and spurring strong demand underlying data centre credit quality may be significantly overestimated.
-- However, even if DeepSeek's capabilities are confirmed, a more efficient and low-cost AI calculation capability could be beneficial to the sector in the long run.
-- Existing data centres with strong credit quality predicated on long-dated lease terms and renewal points are likely to remain unaffected; newer data centres still in the development pipeline may require shorter lease terms with more renewal points to provide hyperscale operators with flexibility, potentially affecting credit quality.