Companies

The Unexpected Benefits of DeepSeek AI for Naver and Kakao

Published February 3, 2025

The rise of DeepSeek, a Chinese artificial intelligence (AI) startup, has brought surprising advantages to South Korean tech giants, Naver and Kakao. Analysts observe that the startup's low-cost, open-source development approach has rekindled hopes that these Korean companies can catch up in the fiercely competitive AI market.

Recent commentary from Kiwoom Securities analyst Han Ji-young highlights a shift in focus within the AI industry. Instead of being dominated by hardware companies, there is now an emphasis on software firms realizing improved profitability due to decreasing AI costs. In particular, DeepSeek's recent market introduction of its AI inference model, R1, demonstrated impressive performance at a fraction of the typical training expenses, thanks to its reliance on lower-grade chips.

Although certain aspects of this breakthrough need further verification, analysts suggest that DeepSeek’s success, combined with its open-source nature, could create valuable opportunities for companies like Naver and Kakao, who have traditionally lagged behind global competitors.

This shift in sentiment has already manifested in stock price increases for both firms. Following DeepSeek's announcement and the Lunar New Year holiday, Naver's stock saw a jump of 6.13 percent, while Kakao's surged by 7.27 percent.

As the rally continued, Kakao's shares rose to 41,800 won (approximately $28.5), marking a 9 percent increase. Naver's stock also experienced a slight rise of 0.23 percent, ending at 217,000 won. Surprisingly, these gains came despite overall market challenges, such as tariffs imposed by U.S. President Donald Trump.

In direct contrast are the domestic semiconductor giants, which have faced recent declines in stock prices. Major players like Samsung Electronics and SK Hynix saw their shares drop by 5.03 percent and 13.62 percent respectively since January 31, amid worries surrounding reduced demand for high-cost chips typically supplied to U.S. AI firms.

Analyst Choi Seung-ho from Sangsangin Investment & Securities emphasized the advantages of open-source technology, suggesting that it could help narrow the gap between smaller companies and their larger tech counterparts. He believes that if DeepSeek's cost-effective methods are properly leveraged, it could significantly enhance AI development in South Korea, which has struggled due to a lack of adequate infrastructure investments.

Both Naver and Kakao have made strides in AI technologies, even developing robust language models capable of understanding human language. However, they have been challenged in developing their systems to match global leaders, primarily due to their limitations in securing the necessary funding for high-performance computing resources.

With the recent shakeup caused by DeepSeek, analysts believe there is a potential for a rebound in both Naver and Kakao, as they strive to leverage this newfound momentum. Their stocks have long faced sluggish performance, and the situation may now be improving.

As part of this optimistic outlook, Korea Investment & Securities raised its target price for Naver by 8.3 percent, from 240,000 won to 260,000 won. Similarly, Kakao's target price was increased by 8.9 percent, from 46,000 won to 49,000 won.

According to Daishin Securities analyst Lee Kyoung-min, the emergence of DeepSeek represents a pivotal moment for the AI industry. He notes that this could either catalyze a new growth phase or push the industry towards a more mature state. With advancements in AI becoming more mainstream, long-term growth prospects appear promising, fueled by increased demand as AI adoption continues to expand.

DeepSeek, Naver, Kakao