Market Is Blindsided by New Game-Changing Chinese AI Technology
The Magnificent Seven stocks are no longer safe havens as DeepSeek disrupts the landscape.
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For the last few years, the market has been celebrating the development of artificial intelligence, the most significant technological development since the internet. Trillions of dollars in market cap have been created as investors stampede into a small group of mega-cap names called the Magnificent Seven MAGS.
The Magnificent Seven stocks have poured billions into developing AI infrastructure. They have created models that contain the knowledge needed in complex AI applications. This has required tremendous computer power, including special chips and huge, high-powered computing systems.
Last week, Liang Wenfeng, a Chinese hedge fund manager, announced a new AI model called DeepSeek. DeepSeek is not only as good as, if not better than, current AI models like ChatGPT, but it was also developed at a fraction of the cost.
DeekSeek did not have access to and couldn’t afford the Nvidia NVDA chips that all AI developers have been using, but it found a way to use less sophisticated chips and new training models to do what companies like Microsoft MSFT have spent 10s of billions to do.
There is panic in the air on Monday morning as investors try to figure out the impact of DeepSeek on AI infrastructure development. It is not clear If DeepSeek is a viable long-term alternative, but the Magnificent Seven, and semiconductor stocks in particular, will lose their pricing power.
While AI infrastructure companies are under pressure, the development of AI models at very low cost will be a boon to the development of AI applications. Companies that use AI to deliver software solutions will be able to do so at far better prices.
On Monday morning, the semiconductor sector is being hit the hardest with a drop of around 7.5%. Nvidia is down over 11% in the early going. The Magnificent Seven group is down 5%, and stocks leveraged to create massive data centers are under pressure as well. Bitcoin is also caught in the wave of selling.
The primary problem is that there is a tremendous amount of uncertainty. There is still not much known about DeepSeek, and many folks are selling first and asking questions later. It is highly unusual for a shift in technology to hit as quickly as this.
In addition to this drama, the market will also be dealing with the potential of tariffs on Mexico and Canada and earnings this week from Apple AAPL, Microsoft, Meta META, and Tesla TSLA.
The Magnificent Seven has been a safe haven for years, but now there is a potential for a major top.
At the time of publication, Rev Shark was long NVDA.
