The launch of the K3 AI model marks progress in core technology, and the investment case for U.S. cloud companies changes little, Morningstar said in an investor note.
- Last week, China’s Moonshot AI launched Kimi K3, which jolted global tech markets and triggered a selloff in semiconductor and Chinese AI rival stocks.
- Investors grew concerned about K3’s surprisingly low cost and high capabilities, which they see as a challenge to Western AI technology.
- Investors will now turn to Alphabet’s quarterly results on Wednesday, the first of the Big Tech companies to report this season.
Shares of hyperscalers Alphabet, Microsoft and Amazon rose less than 1% in premarket trading on Monday, rebounding modestly after sharp losses over the past two sessions that were partly triggered by the launch of China’s Moonshot AI’s latest model, Kimi K3, which is said to outperform most frontier AI models except Anthropic’s.
Kimi K3, which is said to require relatively modest computing resources, has weighed on AI and AI infrastructure stocks. However, one prominent analyst argues the concerns are overblown, saying the model’s efficiency should ultimately act as a tailwind for the broader AI industry.
“The main takeaway for us from the K3’s launch is that AI progress, with Moonshot using new algorithmic techniques to drive performance, continues. This improvement is bullish for the overall ecosystem as a true bear scenario for AI would be a visible stalling in progress,” Morningstar analyst Malik Ahmed Khan said in a new note.
Kimi K3 Launch A Tailwind For AI Sector
He believes the likelihood that the U.S. government would allow Western-aligned enterprises to consolidate spending on open-weight models coming out of China remains slim.
“Even if we were to take the bear case and assume that open-weight models were at genuine parity with U.S. frontier models, we’d argue that the investment case for cloud infrastructure barely changes,” Khan wrote in his report. “Cheap inference expands demand for compute, benefiting these firms.”
On Friday, Moonshot AI launched Kimi K3, a 2.8-trillion-parameter multimodal model with a 1-million-token context window. While it trails elite proprietary U.S. models like Claude Fable 5 and GPT-5.6 Sol, its release – featuring open weights and competitive coding and agentic performance – jolted global tech markets, triggering a selloff in semiconductor and Chinese AI rival stocks.
The release comes as the race for AI supremacy between the U.S. and China intensifies.
“We maintain our fair value estimate for wide-moats Alphabet, Amazon, and Microsoft at $433, $280, and $600, respectively, and see the K3-inspired selloff in each of these names as misplaced,” according to Morningstar.
Retail View: GOOGL Results In Focus This Week
On Stocktwits, the retail sentiment was ‘bullish’ for GOOGL and AMZN, and ‘neutral’ for MSFT, with investors watching out for Alphabet’s results on Wednesday, the first of the Big Tech companies to report this season.
“$GOOGL investors will be watching closely for Alphabet’s AI commentary. Reports around delays to Gemini 3.5 Pro have raised questions about execution, leadership stability, and whether Alphabet can keep pace in the frontier AI race,” a trader wrote.
“The market reaction shows how much AI expectations are now embedded in big tech valuations.”
GOOGL shares are up 11% year to date.
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