🚨 DeepSeek: A Stock Market Black Swan Event? 🚨

DeepSeek’s claim (the rumor):

• Train GPT-4-level models at 1/20th the cost (~$6M vs. $100M+).
• Released a free model (similar to LLaMA) and a web model for public access.
• Innovating with cutting-edge methods:
  • MoE (Mixture of Experts)
  • Multi-token steps
  • Compression techniques
  • Chain-of-thought upgrades for lower GPU requirements.

Why it matters for OpenAI, $NVDA, and the AI bubble:

• OpenAI’s business model: DeepSeek could disrupt OpenAI’s high-cost advantage by showing it’s possible to train GPT-4-level models for a fraction of the cost.
  • Signals a potential AI bubble, highlighting overspending on hardware when better code could solve the problem more efficiently.
  • With lower training costs, smaller competitors might challenge OpenAI's dominance.
  • Chain-of-thought upgrades: Improve reasoning capabilities while reducing computational overhead, adding efficiency that could diminish Nvidia’s competitive edge.
  • $NVDA’s valuation hinges on insatiable GPU demand and massive AI capex forecasts for 2025–2026.

The “Black Swan” risk:

• DeepSeek highlights a potential overinvestment in hardware when smarter code could achieve similar results.
• If VC funding and enterprise spending slow, the ripple effects could hurt both OpenAI and Nvidia, as they are seen as leaders driving the AI hype cycle.
• A potential slowdown in VC funding, which often trickles down into the economy, could ripple across tech and related sectors.

Either way, the ROI and capex questions surrounding AI spending just got a lot more interesting.

Stocks to Hedge the DeepSeek Disruption

Bearish:

1. $MSFT (OpenAI exposure):
   • Heavy investments in OpenAI could be at risk if DeepSeek’s cost-efficient methods gain traction.
   • If hyperscalers like Microsoft reduce AI spending, their ROI on AI investments may take a hit.
2. $NVDA (AI bubble exposure):
   • Nvidia’s dominance relies on massive GPU demand and lofty capex budgets.
   • DeepSeek’s efficiency could cut GPU needs, putting pressure on Nvidia’s valuation and margins.

Bullish:

1. Robotics Stocks: (Check back on 1/29)