Chinese artificial intelligence company DeepSeek is threatening to bring to an end the Wall Street artificial intelligence-driven rally. The company, stating that it developed an AI model that matches that of American rivals while using inferior chips, has left the markets on edge, triggering double-digit percentage losses in the US equity markets.

In late December, DeepSeek released a large language model that is free and open-source. The company claimed that the model was created in two months for less than $6 million, significantly less than what their Western counterparts have demanded. According to numerous independent tests, the model also performed better than OpenAI’s most recent model.

The prospect of DeepSeek disrupting US tech dominance on artificial intelligence solutions is one factor that is sending jitters in the investment community. Its R1 and V3 models outperforming the likes of ChatGPT while using inferior chips has once again put to question the hundreds of billions of dollars that US tech giants have spent and committed to spend in a bid to spearhead the AI revolution.

Alexandra Wang, CEO of Scale AI, told CNBC last week that DeepSeek’s last AI model was “earth-shattering” and that its R1 release is even more powerful.

“What we’ve found is that DeepSeek … is the top performing, or roughly on par with the best American models,” Wang said, adding that the AI race between the U.S. and China is an “AI war.”

Over the past two years, US equity markets have raced to all-time highs amid blockbuster gains in companies exposed to the AI frenzy. In the end, valuations have gotten out of hand as investors placed bets while shunning multiples that have gotten to all-time highs. In comes DeepSeek, which is the catalyst that could once again trigger a significant pullback after months of blockbuster gains.

Even as the DeepSeek sell-off continues to rattle the markets, stock bargains amid the AI revolution are cropping up. While semiconductor companies have been the hardest hit owing to concerns that companies will no longer spend big on hardware for AI, there are companies still positioned to benefit even with the expected capital expenditure cuts.

Some of the best and safest AI plays amid the DeepSeek news are companies already leveraging the technology to strengthen their offering, especially on the software front. Cybersecurity companies using AI to detect and deter attacks should continue being at the forefront of the AI revolution. Likewise, companies leveraging AI to enhance cloud offerings stand to reap big even as China takes the war to the US on AI innovation.

For this article, we selected AI stocks by going through news articles, stock analysis, and press releases. These stocks are also popular among hedge funds.

Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).

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10. Agora, Inc. (NASDAQ:API)

Number of Hedge Fund Holders: 7

Agora, Inc. (NASDAQ:API) is a software application company that offers real-time engagement platform-as-a-services. It provides developers with application programming interfaces to embed real-time voice, video, interactive live-streaming and artificial intelligence capabilities into their applications. On January 23rd, the company moved to enhance the use of AI to enhance decision-making and coordination in the crypto space with the acquisition of blockchain governance startup Boardroom.

With the Boardroom acquisition, Agora, Inc. (NASDAQ:API) is set to enhance governance within the broader Ethereum governance as the Donald Trump administration enhances regulatory clarity in the blockchain industry. The two join forces to provide user-friendly open-source governance for DAOs that leverage artificial intelligence power. Large dataset analysis, outcome prediction, and process automation are all areas where artificial intelligence (AI) can significantly improve the effectiveness and efficiency of DAO governance platforms.

9. Rezolve AI Limited (NASDAQ:RZLV)

Number of Hedge Fund Holders: 3

Rezolve AI Limited (NASDAQ:RZLV) develops and offers retail and engagement technology solutions. Its tools allow users to discover and purchase goods and services, provide personal details in response to advertising, pay a bill, make a charitable donation, and more through a mobile device. On January 22nd, the company echoed the $500 billion Stargate project, given its potential impact.

While the $500 billion Stargate project is expected to accelerate AI adoption across sectors, it also reinforces Rezolve’s AI’s strategic position in the $300 trillion retail market. With its established global distribution connections with Google and Microsoft, which offer unmatched access to merchants globally, Resolve Ai intends to take advantage of the AI boom. Thanks to Google’s retail ecosystem and Microsoft’s co-selling initiatives, it plans to quickly grow its intelligent commerce solutions and provide millions of customers with AI-powered shopping experiences.