The Fed and Big Earnings Take the Stage as DeepSeek Concerns Start to Fade
While big-cap tech is leveraged to AI models, many stocks are benefiting from the potential for the commoditization of AI infrastructure.
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Market participants continue to grapple with the fallout from DeepSeek, but the initial panic has subsided, and there is a more balanced view of what it means for the AI industry.
European semiconductor manufacturer ASML Holding ASML posted a strong report overnight that beat on both top and bottom lines. Management shrugged off the impact of DeepSeek on its business, and the stock is now back to where it was before the DeepSeek surprise.
There will continue to be reverberation from DeepSeek and a new AI model just announced by Alibaba Group BABA, but the focus now will shift to the Fed and major earnings reports on Wednesday night.
The Federal Reserve is expected to leave interest rates unchanged, but the message that the Fed Chair Jerome Powell is likely to send is that it is uncertain about how Trump's policies will impact inflation and economic growth. While there is concern that tariffs will trigger both inflation and a move in the dollar, Trump has been very vague about tariff policy so far.
The biggest danger the market faces in the months ahead is a resurgence in inflation. Bonds have rallied, and interest rates have come down over the past week as Trump's actions so far have been market-friendly, but investors are nervous that inflation is not under control. Investors will have to watch bonds carefully. There is still hope for Fed rate cuts later this year, but an uptick in inflation could change that quickly.
After the Fed policy announcement on Wednesday afternoon, the market will contend with the biggest night of earnings so far this quarter when Meta META, Tesla TSLA, and Microsoft MSFT report. Expectations are high, but comments about DeepSeek will impact the reaction to the numbers.
The primary thing I will be watching for is more rotational action out of the Magnificent Seven and into the broader market. While big-cap technology is leveraged to AI models, there are many stocks that are benefiting from the potential for the commoditization of AI infrastructure.
Names such as Snowflake SNOW and GitLab GTLB have ripped higher while the semiconductor group has struggled. AI is becoming cheaper, which may be a problem for those companies that provide the infrastructure, but it is a boon for the many companies that are using AI to develop new uses and applications.
Conditions are favorable for stock pickers as the business media focuses more on macro matters and the negative implications of DeepSeek.
At the time of publication, Rev Shark was long SNOW and GTLB.
