1. AI Carnage!

Anxiety about China’s “DeepSeek” caused a sharp selloff in US tech stocks and major indexes as investors raised alarms about concentration risk in tech stocks ahead of mega-cap earnings this week.

“DeepSeek shows that it is possible to develop powerful AI models that cost less. It can potentially derail the investment case for the entire AI supply chain, which is driven by high spending from a small handful of hyperscalers,” says Vey-Sern Ling, managing director at Union Bancaire Privee.

“The impact of lower spending can hit chip designers, equipment suppliers and even foundries.” After all, much of their rally has been driven by a race to acquire the most technologically advanced chips at the largest volume…and at basically any price. If cheaper alternatives exist, then growth for these companies will suffer.

Goldman is calling this tech sell-off a 'low quality' dip and encouraging clients to buy it.

2. How can “Deepseek R1” cause panic?

DeepSeek showed that you don’t need to spend billions to make a great AI model. They did it for just $6 million, a small amount compared to the spending of big companies like OpenAI and Anthropic.

Additionally, DeepSeek’s R1 model is open-source, allowing others to adapt and use it for their own purposes. This could create other cheap AI alternatives, further reducing the U.S. chip supply/demand imbalance and pricing power.

Still, others say that DeepSeek’s ability to cut AI training costs is only one piece of the puzzle. The AI infrastructure industry will continue to grow as tech companies require more computing power, elevating demand for years to come.

Whether DeepSeek will rebalance the world’s AI development playing field remains to be seen.

However, many high-flying stocks in the space traded down today on fears that their lead may not be as great as initially thought.

OpenAI CEO Sam Altman called Chinese startup DeepSeek's R1 AI model ‘impressive,’ but emphasized that OpenAI believes greater computing power was key to their own success.

3. The race to the price bottom is just starting and nobody does it better than China.

Now you've heard of DeepSeek's R1. But have you heard of Bytedance's Doubao-1.5 or Moonshot's Kimi k1.5?

4. Here's the billion dollar question:

Will the US allow DeepSeek to be used by Americans just days after TikTok was targeted for data collection?

DeepSeek's website collects "your device model, operating system, keystroke patterns or rhythms, IP address, and system language."

DeepSeek is even worse than TikTok from a data collection viewpoint.

Will China be allowed to control AI in the US?

5. Semiconductor stocks got smacked with Nvidia down 17%.

“Current valuations do not factor in the risks of competition, which seems inevitable, and risks of diminished order books in the future, and all the other reasons that lofty valuations eventually revert to the mean,” said David Bahnsen, chief investment officer at The Bahnsen Group.

He added that he does not expect “big tech earnings over the next two weeks to help justify the sector’s elevated valuations.”

Nvidia suffers its first daily close below the 200 day moving average in more than 2 years.

6. Rotation from hardware into software.

A potential lower cost of inference and lower cost for AI model deployment could lead to much wider adoption of Gen AI in the enterprise, which is likely beneficial to software and IT services vendors.

Only in the last three months have we seen Gen AI monetization starting to show up for software and IT services vendors.

7. Cheap AI models like R1 opens a wide field of opportunities into agentic AI.

Agentic AI is similar to copilots used today, but unlike AI chatbots that use generative AI to provide responses based on a single interaction, Agentic AI can "think."

These robots can use reasoning and iterative planning to solve complex, multi-step problems autonomously which is referred to as "test time scaling".

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