Kimi 3.0 Might Be a DeepSeek Moment; We’d Buy Several Cloud Computing Companies

Moonshot AI recently launched Kimi K3, a 2.8 trillion-parameter open-weight model that claims performance levels near Anthropic’s Fable 5. The market reacted with a selloff in major technology stocks including Alphabet, Amazon, and Microsoft. While some view this as a threat to US-based cloud leaders, we view this reaction as misplaced and see a buying opportunity in these established companies.

Technological progress in the artificial intelligence sector remains constant. Moonshot AI uses specific algorithmic techniques to increase model performance, which benefits the entire ecosystem. A scenario where progress stalls is a larger risk to the sector than the arrival of a new, cheaper model. We maintain our fair value estimates for Alphabet, Amazon, and Microsoft.

Concerns about open-weight models matching the quality of American frontier models often overlook the importance of infrastructure. Even if an enterprise relies on open-weight software, it still requires cloud infrastructure to run workloads, store data, and manage security. This creates a lasting demand for the services provided by major cloud computing firms.

Furthermore, government policies likely limit the adoption of Chinese-developed open-weight models by Western firms. Security risks regarding control of the intelligence layer make these models less attractive for critical national infrastructure. We expect cloud providers to continue capturing value regardless of fluctuations in the model market.