1. Today we have the Fed meeting and some Mag 7 earnings.

Starting with the Fed, rates will remain unchanged. And after the last set of economic projections, many aren’t expecting a cut until at least the second quarter.

While the actual rate decision is priced in, Jerome Powell’s commentary will be important. Trump recently indicated he wanted interest rates in the U.S. to fall, signaling some potential pressure on the Fed to make a move. However, Powell said he would not resign nor bow to any pressures from the President.

It’s also D-day for some megacap earnings and with Meta trading near all-time highs and Microsoft and Tesla not far off theirs, expectations are certainly high for these stocks. We’ll have to wait and see if they can deliver the optimistic views and if the “Magnificent Seven” can continue their dominance this earnings season.

2. The “Deepseek” bull case.

“The reduced cost of AI models was inevitable and will democratize access to AI technologies, enabling a wider range of companies to adopt AI solutions that were previously cost-prohibitive, steepening the long-term AI adoption curve, driving more investments as corporations build larger clusters and enhance their AI capabilities.

The open-source nature of DeepSeek's approach allows for rapid incorporation by others, potentially accelerating usage and creating new use cases, as lower prices could free up resources for new use cases, reminiscent of the early days of cloud adoption.”

“Practically every surveyed CIO plans to adopt AI applications in the near future and AI adoption appears to be at or above internet and computer adoption rate curves.

Ultimately AI adoption is on track, but investors will be increasingly sensitive to whether hyperscalers are earning a positive ROI on their capex outlays.”

3. The “Deepseek” bear case.

Ray Dalio warns that investor excitement over artificial intelligence is causing a “bubble” in US stocks similar to the one ahead of the dotcom bust, according to an interview with the Financial Times.

“There’s a major new technology that certainly will change the world and be successful. But some people are confusing that with the investments being successful.”

The bear case revolves around uncertainty on the capex cycle and the returns on those investments. Jefferies Global Equity Strategist Christopher says he will reduce holdings in some artificial-intelligence stocks due to the “potentially dramatic implications” of DeepSeek.

“The DeepSeek news will cause pressure on the AI hardware supply chain, on concerns that companies like Meta will do a U-turn and slash capex spending, Wood wrote.

4. What about the impact on the data center build-out?

“As the cost of compute drops, and as LLMs become more efficient in using computational resources, there is the potential for an acceleration in AI adoption and the associated demand for AI inference/data centers.

The amount of compute required here would be huge and they will see an explosion of usage and small models and AI agents.”

“The near-term reaction from hyperscalers is still likely to keep investing heavily in AI hardware to make sure they can push their Frontier LLMs to higher performance.”

5. Much ado about nothing then?

Microsoft, which reports quarterly results today, will be the first big tech company with the opportunity to signal whether DeepSeek’s breakthrough will reduce its investment plans.

The company is expected to drop about $84 billion in capital spending for the fiscal year ending in June and $94 billion in the next year, according to consensus estimates from Visible Alpha.

So far, the company certainly isn’t signaling a plan to pull back on its ambitions.

“As AI gets more efficient and accessible, we will see its use skyrocket, turning it into a commodity we just can’t get enough of,” wrote Microsoft CEO Satya Nadella in a post on X.

Microsoft was remarkably resilient during the selloff. Minus 2% was just a blip on the radar.

6. Alibaba released a new AI model it claims surpasses DeepSeek-V3.

The unusual timing of the Qwen 2.5-Max's release, on the first day of the Lunar New Year when most Chinese people are off work and with their families, points to the pressure Chinese AI startup DeepSeek's meteoric rise in the past three weeks has placed on not just overseas rivals, but also its domestic competition.

Also, two days after the release of DeepSeek-R1, TikTok owner ByteDance released an update to its flagship AI model, which it claimed outperformed Microsoft-backed OpenAI's o1 in AIME, a benchmark test that measures how well AI models understand and respond to complex instructions.

The race has just begun and Chinese tech (KWEB) is going higher.

7. Happy Chinese New Year!

“The snake, which matches up with the years of people born in 1941, 1953, 1965, 1977, 1989, 2001, 2013 and 2025, is most commonly associated with the potential to be really successful, because they can think outside the box, and they will endure and they will persevere.”

Let’s see if the Chinese stock market performs better in 2025 than the dragon year of 2024.

Xin xiang shi cheng!

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