KUALA LUMPUR (Jan 27): Shares of NationGate Holdings Bhd (KL:NATGATE) plunged to their lowest level in three months on Monday, as investors weighed on the implications of Chinese startup DeepSeek’s launch of a free open-source artificial intelligence (AI) model.
NationGate, one of few Asean assemblers of graphic processing units (GPU) produced by Nvidia Corp, saw its stock tumble as much as 32 sen or 14.7% to RM1.86 on Monday, marking its lowest level since Oct 22, 2024.
The counter was still down 30 sen or 13.76% when it closed at RM1.88, giving it a market capitalisation of RM4.96 billion.
It was among the top actively traded stocks on Bursa Malaysia, with approximately 41.96 million shares exchanged — over four times its 200-day average volume of 9.49 million shares.
The DeepSeek reveal caught market interest following claims that a version of its open-source large language models — used in other platforms like ChatGPT — was trained at a fraction of its competitors.
That said, there is still "uncertainty about how many GPUs they (DeepSeek) actually use to achieve the best performance results for their AI model”, an analyst following NationGate and the AI data centre segment told The Edge.
The analyst, who declined to be named, was nonetheless positive on NationGate on the premise that "the company may still be able to meet its forecasted revenue and earnings" for the financial year ending Dec 31, 2025 (FY2025).
However, another fund manager was less optimistic, as he believes "it will take at least 12 months" for greater clarity in terms of just how much advanced GPUs or computing power is needed by AI technology developers moving forward.
The reported $6 million spent to develop DeepSeek, while lacking details, "massively undercuts" the minimum of hundreds of millions of dollars spent by on other LLMs in the past, the analyst said.
"It massively undercuts the estimated expenditure for data centres. It would be akin to using a hammer to kill a fly when a fly swat would suffice," the analyst said.
NationGate is trading at a trailing price-earnings ratio (PER) of 44.3 times, the highest among other electronics manufacturing services (EMS) peers, according to AskEdge data.
In comparison, D&O Green Technologies Bhd (KL:D&O) trades at a trailing PER of 39.2 times, Aurelius Technologies Bhd (KL:ATECH) at 33.4 times, and PIE Industrial Bhd (KL:PIE) at 29.6 times, according to AskEdge.
Shares of D&O fell 4.62% at RM1.86, Aurelius slipped 0.61% to close at RM3.25, and PIE Industrial dropped 5.27% at RM4.67, ahead of the wider Bursa Malaysia Technology Index, which fell 2.3% on Monday.
Nonetheless, NationGate shares were still up 35% from a year ago. Out of six analysts covering the stock, three have a ‘buy’ call and three have a ‘hold’ call, with target prices (TP) between RM2.10 and RM4 for an average TP of RM2.70.
The highest TP was given by Macquarie, citing the company’s earnings certainty, long growth runway, and earnings quality, with 75% of its revenue derived from AI servers.
Prior to the DeepSeek news, and before the US chip export restrictions concerns came to light, Macquarie in a note dated Jan 3 said NationGate, alongside YTL Power International Bhd (KL:YTLPOWR), are direct AI proxies in Malaysia’s tech supply chain, boasting the highest AI revenue exposure and earnings trajectory among peers in the technology sector.
“NationGate, a leading diversified EMS player, is one of four elite Nvidia OEM (original equipment manufacturer) partners in Asean, allowing it to gain a first-mover advantage.
"We forecast its data computing business (90% of revenue) to deliver a 312% revenue CAGR (compound annual growth rate) over FY2023-FY2026, driving a 61% net profit CAGR in FY2023-FY2026, the highest growth in Malaysian tech. It is our most preferred Malaysian technology stock,” the house said.
Macquarie projected NationGate to record a net profit of RM209.8 million on revenue of RM6.39 billion for FY2025. For FY2026, the house estimated the company’s net profit to rise to RM254.9 million, supported by revenue of RM8.15 billion.
UOB Kay Hian Research, which had the lowest TP of RM2.10, however revised the call on NationGate to 'hold' back in November before the AI data centre story faced its recent hiccups.
At the time, the research house said "while growth could be further propelled by new customer acquisition alongside synergistic business collaborations, we believe the positives have been priced in", noting the seven times rise in the counter in over one year.
Other data-centre related stocks, AI proxies also in the red
The launch of DeepSeek has also caused a decline in stocks related to data centres and AI proxies, pushing them into the red. News reports suggested that the Chinese model may challenge the US’ global leadership in AI, which could threaten Asian tech companies within the US AI value chain.
In the construction sector, Sunway Construction Group Bhd (KL:SUNCON), which holds the largest number of data centre-related contracts in its order book, saw a 5.51% drop in its share price to RM3.43. Gamuda Bhd (KL:GAMUDA) fell by 3.1% to RM4.06, while IJM Corp Bhd (KL:IJM) experienced a 6.59% drop to RM2.41.
In the property sector, Sime Darby Property Bhd (KL:SIMEPROP), which is developing a data centre for lease, saw a 5.37% decrease to RM1.41. Meanwhile, Mah Sing Group Bhd (KL:MAHSING), which has a joint venture with Bridge Data Centres, slipped 4.17% to RM1.38.
YTL Power, which is setting up data centres equipped with Nvidia’s latest chips, dropped 10.8% to RM3.22. The selling pressure on YTL Power was also driven by the announcement of a proposed bonus issue of warrants aimed at raising billions of ringgit in fresh capital over the next three years. These proposed warrants, pending shareholders' approval, will be non-tradeable.