Some people are not as lucky.
This morning the FOMC began their two-day conference. While we are sure they will be discussing labor and inflation, I am willing to wager that they also have an eye on stocks.
The AI industry dominates the market at the moment.
Yesterday, a Chinese AI company called DeepSeek sparked a 1 trillion dollar drop in US and European technology stocks.
Nvidia ranked as the top losers. On Monday, shares ended 17% down. Meta fared quite well in its Monday session. After opening the day 3% down, it pared early losses.
Microsoft closed the day more than 4 percent lower and Alphabet more than 2 percent. Siemens energy fell as high as 19% across Europe.
There’s lots to explore. What has investors so worried?
DeepSeek says it has trained its AI model on a budget. Really cheap. The exact amount is $5.6 million.
For those who don’t think that’s an amazing deal, let’s put the situation in perspective. Anthropic’s CEO Dario Amedei said building their models cost anywhere between $100m and $1billion. OpenAI estimated that the cost of training GPT4 was close to $100 million.
Even if you don’t buy DeepSeek’s $5.6 million claims — and to be clear, we should all take this self-reported figure with a massive grain of salt — the company does seem to be operating with an efficiency that US-based AI companies just don’t have.
DeepSeek claims to use a fraction the amount of computing power required for other models like Meta’s Llama which, ironically, helped R1 train. Thanks, open source.
Mark Zuckerberg is said to have assembled four distinct teams. “war rooms” Meta has a team dedicated to DeepSeek analysis. We expect that most AI companies will have similar setups as earnings season approaches.
You can also find out more about the following: “chip issue” Another pain point is for US investors. Export restrictions on GPUs during Biden’s tenure may not work as effectively as we hoped. Chinese companies may have found other ways to get around the restrictions. In either case, it raises concern not just about the national security, but about chip suppliers like Nvidia.
Investors have woken up in a much better mood this morning, despite the doom and gloom. At least, they were in the mood for a bargain. Nvidia stock was back up 7% at 2 pm ET.
“Despite DeepSeek’s promise, we doubt the leading cloud vendors and AI builders will pause their plans, although it’s a risk that certainly bears watching,” Brian Colello is a Morningstar analyst.
“We believe AI GPU demand still exceeds supply, so while slimmer models may enable greater development for the same number of chips, we still think tech firms will continue to buy all the GPUs they can as part of this AI ‘gold rush.'”
Nvidia’s executives are going to be faced with some challenging questions on the Q4 earnings call. Their preparation time is about four weeks.
Markets expect central bankers will hold rates constant at tomorrow’s FOMC meeting. Powell won’t say much about the AI issue, but I would not be surprised to hear him asked questions during his presser.
Check your mailbox tomorrow for any new updates.
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