Between chips order, Stargate and DeepSeek, Indian AI firms take a beating

Titled ‘Update on certain global developments in the space of AI and its impact on Netweb Technologies’ business’, the note claimed that the company is well-poised to capitalize upon the emergence of China’s artificial intelligence upstart DeepSeek, which rained catastrophe on US tech giant Nvidia Corp on Monday by wiping out nearly $600 billion from its market cap.

“DeepSeek paves the way for inclusive AI adoption, expanding the market further. By lowering the cost barriers associated with advanced technology, it enables a wider range of customers—previously hesitant due to high adoption costs—to access and utilize appropriate computing resources… AI performance acceleration enabled by platforms like DeepSeek will drive greater adoption of our solutions,” the company’s investor note read.

Investors reacted positively to the note, even though Netweb did not lay out any specific growth guidance. Within the first hour of trading on Wednesday, the company’s stock hit the 10% upper circuit, and closed at this level at ₹1607.65 apiece.

Chirajeet Sengupta, managing partner and tech analysis firm Everest Group, said that there is room for growth even for AI service providers, despite DeepSeek’s threat to the global AI status quo.

“There is a certain level of reaction in the market because of DeepSeek, which will eventually equilibrate. Given the geopolitical balance of nations with China, it’s unlikely that a direct adoption of a Chinese AI model will play through—leaving room for AI operations in India to recover and grow,” Sengupta said.

Global AI policy shifts

Not everyone, however, is convinced as yet. Two senior equity research analysts at two Mumbai-headquartered brokerage firms, who requested anonymity since their firms do not officially track Netweb Technologies, or its compatriot—the ₹5,900-crore E2E Networks Limited, said that the decline in stock prices of the two companies is in direct correlation to multiple global incidents—former US president Joe Biden’s executive order leaving India out of a list of nations with unrestricted access to American chips, current president Donald Trump Jr’s announcement of ‘Stargate’ with an ‘America-first’ approach to AI development and data centres, and finally, China’s DeepSeek disrupting US tech giants Microsoft, Google, Nvidia and OpenAI.

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“India has for long been a services-first economy in the global technology supply chain. While it has successfully managed to scale this to a near-$300 billion industry that substantially contributes to the domestic output, it’s important to note that most or all of the core patents and intellectual properties in AI are owned by the US. This leaves firms such as E2E Networks and Netweb Technologies, which have bet on providing AI cloud compute infrastructure at a significantly lower cost than compatriots in North America and the European Union, at risk of losing significant business,” one of the analysts cited above said.

To be sure, both E2E Networks and Netweb Technologies have witnessed exponential growth over the past two years. Share prices of E2E Networks rose from ₹168 apiece in July 2023 to a high of ₹5487.65 in November last year—a near-33x rise. For Netweb Technologies, its initial public offering at ₹500 per share in July 2023 grew to ₹3030 per share by December last year—a growth of over 6x.

“The stellar growth and sharp returns for investors was coming off the back of rise in hype and demand for generative AI around the world. As Nvidia-backed compute saw a shortage in supply due to heavy demand, low-cost AI cloud service providers such as E2E Networks and Netweb Technologies became natural favourites for investors. It’s no surprise that if the US decides to restrict access of Nvidia processors to these companies, investors will start pulling out as the very business model of a low-cost AI cloud platform provider gets disrupted,” the second analyst cited above said.

The launch of China’s DeepSeek has further caused uncertainty around how reduced demand for AI compute to create models, applications and services may impact cloud service providers. Each of the analysts said that it is this reason why investors likely reacted positively to Netweb’s note, which said that as of the December quarter, the company’s topline “grew by more than 60% on a significantly higher base.”

Share prices of E2E Networks, however, still hit the 5% lower circuit in intraday trading on Wednesday—even as the 30-share BSE Sensex benchmark index gained 631 points through the day.

Emails sent to E2E Networks and Netweb Technologies seeking responses to their future growth trajectories and potential business pivots did not receive responses until press time. Additionally, a spokesperson for Netweb Technologies did not respond to requests for comment through Wednesday.

Growth expectations, however, remain—offering a silver lining to both these companies.

“Global tech concerns, including the US’ push for an America-first strategy, could play in favour of Indian tech firms, because it’s unlikely that the US economy will entirely do away with tech outsourcing due to cost factors. That said, market reactions will depend on foreign institutional investor (FII) patterns—which is what has led to the Indian market’s crash in the past two weeks. In the long run, Indian tech services firms will have plenty of room to grow, and recover from their current phase of deceleration,” Sengupta said.

Jaspreet Bindra, co-founder at tech consultancy firm AI&Beyond, added further that while there will always be room for low-cost tech service providers, their long-term growth potential will be defined by their ability to scale up core innovation beyond the cost factors. “The world will always need low-cost AI cloud platform operators, but beyond a point, the key growth phase in a business will come only if these Indian firms can develop core products and solutions to cater to the AI growth phase. That, in the long run, would make them of greater value to investors.”