3 Stocks to Buy for the DeepSeek Paradigm Shift

DeepSeek is more than just a new AI company. Its origin story implies a massive paradigm shift. 

In case you’re new to the party: DeepSeek was built by a Chinese quant fund as a side project for significantly less money and fewer resources than other major AI models. Despite these constraints, it’s equally powerful, and it is open-source. 

All of a sudden, it’s become apparent that the companies racing to spend hundreds of billions of dollars to build the best AI systems may not be the best investments. Similarly, chip stocks and AI infrastructure stocks have also been in the red since DeepSeek’s unveiling. 

In fact, AI platforms may not end up capturing the bulk of the value but rather it’s the companies that can package cheap and abundant AI into more tangible and applicable solutions and services.

Think of it this way: The companies that provide connectivity to the Internet like cable or mobile don’t capture much of the value of the Internet economy. Rather, it’s companies like Google, Facebook, and Amazon that take the biggest pieces of the pie. These companies have distribution and wide moats, powered by network effects and high switching costs. 

Prior to DeepSeek, the narrative around AI was that it was a race to build the best AI. It was possible that AI would be a winner-take-all market like search with Google or social media with Meta. Or, it could be more of an oligopoly with multiple winners like cloud computing, where a handful of companies have carved out meaty chunks of market share in a huge, profitable market with sizable moats.

In this world, investing hundreds of billions to establish dominant market share is justified.

But DeepSeek implies that AI could be more of a commodity product — replicable, low switching costs, and competition drives down prices. 

In the post-DeepSeek world, distribution will prove to be the moat. Investors should look for companies that are well-positioned to sell AI services and products to their customers and can leverage AI to improve their offerings and enhance efficiencies. 

Below, we will talk about three stocks in this category — Wix (NYSE: WIX), Cloudflare (NYSE: NET), and Meta Platforms (NASDAQ: META) — whose growth, TAM, and profitability could inflect higher due to AI. Both of these stocks are also highly rated by our Zen Ratings system and are poised to be big winners in this new paradigm.

1- Wixcom Ltd. (NYSE: WIX)

⭐ Earnings expected 2/19

Wix is a no-code, online platform that allows individuals and businesses to create and manage their own websites, e-commerce stores, and service providers. Cheap and abundant AI  will supercharge Wix’s offerings related to building websites, payment processing, content creation, customer service, analytics, personalization, marketing, and automation.

Currently, Wix’s main sources of revenue are its premium subscriptions and business solutions. With AI, Wix will be able to offer more customized products and services to its customers who in turn will be able to generate more revenue. For example, Wix can offer its e-commerce clients additional features such as optimized product recommendations, personalized marketing campaigns, and automated customer service for a better user experience to drive more sales and revenue. 

Zen Rating: A (Strong Buy) — see full analysis  

Recent Price: $238.9 — get current quote

Max 1-year forecast: $300 — Find Out Why

Why we’re watching:

• Wix was added to the Zen Investor portfolio on November 6 — already a seal of approval as each stock in the portfolio is hand-picked by 40+ year market veteran Steve Reitmeister, who uses a rigorous 4-step screening process to locate the highest-potential stocks. 
• Since its addition to the Zen Investor portfolio, the stock is up 42%, while the S&P 500 is up just 1.1% over the same period. Click here to check out other stocks in the Zen Investor portfolio.
• In his Buy recommendation, Reitmeister noted the company’s impressive streak of exceeding analysts’ expectations for 10 straight quarters: “If the beat and raise traditions continue… then the high $200’s are a real possibility by the end of 2025 and probably doubling in 2026 making this a very appealing long term play.”
• Notably, Wix is in the midst of an inflection point for earnings. In its last fiscal year, the company earned $0.59 per share. This year, the company has already earned $1.63 per share in just 3 quarters. Q4 results will be released on February 19. 
• Top-rated analysts agree that WIX is a watch. It’s a consensus Strong Buy among the 14 equity analysts we track issuing ratings — 11 rate it a Strong Buy, 2 rate it a Buy, and 1 rates it a Hold. Notably, Wix has no Sell or Strong Sell Ratings from Wall Street analysts. See the ratings.
• The most recent upgrade was on January 21 from Raymond James’ Josh Beck, (a top 2% rated analyst), lifting his price target to $300. Beck believes that Wix will continue to take market share from WordPress. This will drive continued acceleration in growth and profitability. Notably, he is bullish on Wix’s new product for agencies, Wix Studio, based on his channel checks, as it is gaining significant traction and market share among web design agencies. 
• WIX has an exceptional “A” Zen Rating, meaning it’s ranked in the top 5% of the thousands of stocks we track. Shaping that overall grade are standout Component Grades for Financials, Growth, and Momentum. (See all 7 Zen Component Grades here >)

2- Cloudflare Inc. (NYSE: NET)

⭐ Earnings expected tomorrow, 2/6 

Cloudflare makes websites and the Internet safer, run faster, and more reliable. The company operates like a security guard and air traffic controller - it keeps websites safe from hackers and DDOS attacks, and it helps manage the flow of traffic to ensure speed and reliability. 

Cloudflare is well-positioned to deliver AI solutions to its customers. Already, Cloudflare is using AI to help customers more accurately detect threats, apply AI algorithms to improve network performance, provide customer service, and automate tasks. It has also completed its WorkersAI platform which lets developers deploy AI tools and apps on Cloudflare’s network. 

Zen Rating: B (Buy) — see full analysis

Recent Price: $138.4 — get current quote

Max 1-year forecast: $150 

Why we’re watching:

• A consensus Buy, Cloudflare is tracked by 19 equity analysts in our database. 6 rate it a Strong Buy, 4 rate it a Buy, and 7 rate it a Hold. Cloudflare only has 1 Sell and 1 Strong Sell Rating from Wall Street analysts. See the ratings
• YTD, the stock has been the recipient of 2 Strong Buy upgrades and 3 reiterated Strong Buy ratings. The most recent upgrade was on January 17 from Citi’s Fatima Boolami, (a top 5% analyst), raising her price target to $145. (Click here to see price targets from other Wall Street analysts.)
• Following the company’s last earnings report, the stock saw an acceleration in revenue to 30.1% with gross margins of 77.5%. The company credits its focus on enterprise sales. 70% of new sales hires are in enterprise, compared to an average of 40% in previous years.  
• The company is reporting Q4 earnings tomorrow, 2/6. Analysts will be focused on whether these efforts continue to yield results in terms of customer acquisition and revenue growth without sacrificing margins. 
• Currently, the company counts 35% of the Fortune 500 as customers and has 3,650 customers with billings of over $100,000 annually.
• The company is projected to grow revenue by 26% annually over the next 3 years, so it’s not surprising to see that it’s rated an A for Growth by the Zen Ratings. Also worth noting? The stock is in the Software/Infrastructure group which is also rated an A. (See all 7 Zen Component Grades here >)

3- Meta Platforms Inc. (NASDAQ: META)

For nearly a decade, Meta has been coasting on the success of its legacy businesses which derive the bulk of revenue from advertising. It seems to be quietly acknowledging that its bullishness on the metaverse was a mistake as the company has been shifting resources into AI.

For Meta, the DeepSeek breakthrough means that less capital expenditures may be required. And, Meta already has billions of users on various platforms, so it is a clear leader in terms of distribution for consumer applications.

Cheap AI is a powerful catalyst that will reinvigorate growth. With AI, ad-targeting can be even more effective and lucrative. Engagement rates can increase with personalized content and user experience. In addition to new efficiencies being unlocked with AI, the company will also be able to create new sources of revenue. 

Zen Rating: B (Buy) — see full analysis

Recent Price: $697.4 — get current quote

Max 1-year forecast: $875 

Why we’re watching:

• Serious momentum: Since Meta’s nearly 80% decline from September 2021 to November 2022, the stock has been on a tear, climbing more than 680%. 
• Analyst support: A consensus Buy, Meta is rated by 41 equity analysts we track. 27 rate it a Strong Buy, 12 rate it a Buy, and 2 rate it as a Hold. META has no Sell or Strong Sell ratings. See the ratings 
• For example, on January 30, Lloyd Walmsley of UBS, a top 1% rated analyst, reiterated his Strong Buy rating and raised his price target from $736 to $786. He believes that the market is underestimating the impact of AI to the stock in categories like ad revenue and product development. 
• Similarly, Jason Helfstein of Oppenheimer, a top 1% rated analyst, also reiterated his Strong Buy rating on the stock, following Q4 earnings. He also lifted his price target for the stock to $800 from $650 citing better ROI for advertisers, increasing ad revenue per user, and confidence in Meta’s AI roadmap. (Click here for more price targets.)
• Worth noting: Meta’s Q1 earnings outlook came in softer than expected with a midpoint of $40.5 billion. And, it also plans to spend between $60 billion and $65 billion in CapEx in 2025.
• Higher levels of spending are a major reason why analysts are expecting the company’s earnings growth to decelerate to an average of 13% over the next 3 years, in contrast to a 60% increase in EPS over the past year.  
• Over the last 3 years, Meta’s share count has declined by 10%, providing another tailwind to EPS.
• META earns a Zen Rating grade of B, putting it in the top 20% of stocks we track, and in a class of stocks that have historically generated 19.88% annual returns. META is rated an A for Financials and a B for Momentum. (See all 7 Zen Component Grades here >) 

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