Wells Fargo notes DeepSeek’s R1 model reportedly offers competitive performance at a fraction of the costs vs OpenAI’s o1, fueling fears around the AI build cycle. However, the firm sees Microsoft (MSFT) smartly positioned in infrastructure plus lower barrier to entry as positive for app software. Vendors at the app layer are leveraging a mix of 1p, 3p, and self-hosted OSS models, and in Wells’ view are set to benefit from breakthroughs in foundation models like DeepSeek. Rapidly improving model efficacy coupled with falling cost of compute is likely to result in even more value accruing to the apps layer – where data, integrations, and customer relationships remain paramount. Key beneficiaries include ServiceNow (NOW), Salesforce (CRM), Atlassian (TEAM), and HubSpot (HUBS).
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