The opinions expressed below are my own and do not necessarily represent those of Visdom Investment Group, LLC.
Danger, Will Robinson
A Chinese startup called DeepSeek developed a sophisticated AI recently and the market took note today. It’s unclear whether the new AI model’s claims can be trusted but, supposedly, the performance is comparable to the mega models developed by the established players, but at a miniscule cost compared to the biggies. If true, future AI models won’t require huge numbers of Nvidia processors and huge energy consumption, as previously assumed. That could upset quite a few apple carts.
Wall Street doesn’t know what’s true of course, nor how much truth is out there versus propaganda. However, the introduction of uncertainty into an area where future projections have been richly rewarded in present values, shakes up the market. NVDA took the brunt of the pain and lost about 17% today. The rest of the market suffered in sympathy. Treasury yields fell across the curve and flow was heavy today, 153%.
Dip-buyers are going to view today as a fantastic opportunity. I think a lot of chart-followers will be buying early and often for a while. What matters more than the chart, is the fundamental development we’ve just seen.
Did DeepSeek find a better way to build, train, and run a large AI model or not? Is it so much better that the prior plans for AI development, which involved tens to hundreds of billions, are about to change?
DeepSeek’s AI model is built with open source code so the rest of the AI community *should* be able to figure this out for themselves shortly. We will have to see what they say.
I think the prior understanding and more important, *forecasting*, of AI business has just shifted significantly. That’s a big change to the investing landscape.
For that reason, today’s dip can’t be considered the usual dip. This has the potential to be a true market pivot.
This doesn’t have to be the beginning of a bear market, although that’s possible. It could very much be the end of the party, for a long while.
Today’s dip is different than past dips. There’s a fundamental component here. It’s presently uncertain, but it’s significant. Only if it’s a trivial change in the world, will today’s knee-jerk dip-buyers get rewarded. I think that’s a low probability.
See you tomorrow.
-Mike
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