DeepSeek is currently the most popular free app in the UK on the Apple (NASDAQ: AAPL) app store. So I thought I’d join the crowd and take the Chinese chatbot for a test drive. After first being told I couldn’t register — it turned out it had been hit by a cyberattack — I was finally able to open an account. So I asked it for its top three S&P 500 growth shares to consider buying.

Here’s what the artificial intelligence (AI) bot said…

The top pick

The first stock it churned out was Apple. It highlighted the firm’s strong balance sheet and large ecosystem of products and services.

I wouldn’t disagree with that. The iPhone maker had cash and liquid assets of $65.2bn at the end of September, and has over 2.2bn active devices worldwide. However, I would challenge DeepSeek’s assertion that revenue growth is “strong” and it has shown “consistent innovation“.

Apple’s revenue dipped 2.8% in 2023 and grew just 2% in its most recent financial year. Meanwhile, it has fallen behind competitors in China and has reportedly stopped production of Apple Vision Pro headsets temporarily due to lack of demand. It also spent a decade working on an electric vehicle that it never brought to market, before cancelling the project last year.

Having already built out its massive user base, Apple is focused more on incremental improvements. This isn’t to criticise the company, just to question some of DeepSeek’s points.

With the stock’s price-to-earnings (P/E) ratio at a high 34, Apple wouldn’t be my top S&P 500 choice.

The other two

The bot’s second pick was Microsoft. Hmm…I’m detecting a pattern here. That’s because Apple just reclaimed the tile of the world’s most valuable company, with Microsoft at number two. In third place is AI chipmaker Nvidia, after its share price slumped nearly 17% yesterday (27 January).

But surely DeepSeek didn’t give me Nvidia as its third pick? Laughably, it did, spitting out the S&P 500’s top three in nearly the exact same pecking order as of its training cut-off date (July 2024).

Ironically, of course, it was DeepSeek that was responsible for Nvidia’s epic one-day drop yesterday. Investors were spooked by its purportedly dirt-cheap development cost compared to Western rivals like ChatGPT.

I also asked the AI assistant whether it was a threat to Nvidia’s share price. Interestingly, it ended with, “I’m not a direct danger, but I’m part of a broader trend that Nvidia will need to navigate as the AI landscape evolves“.

Final thoughts

I asked ChatGPT Plus for three S&P 500 stocks at the beginning of the year and it also gave me Microsoft and Nvidia. But it broke with index orthodoxy and went with Visa as its third pick.

Is DeepSeek any good? Not for picking stocks, though I only used the free version. My hunch is the US will ban it on security grounds.

More broadly, it’s becoming clear that generative AI models are commodities. This means margins will probably be low, unlike the traditional Silicon Valley software model.

That’s not to say AI in general won’t revolutionise industries. I reckon it eventually will, like electricity has.

But the key for investors is to figure out whether an AI-based company actually has a durable competitive advantage (or not).