We’ve been tracking cracks in the facade of the AI hype machine for quite some time now. In a twist of events, the world was just blindsided by the surprising introduction of China’s DeepSeek AI.
At the time of writing this newsletter, we’re about 48 hours out from the $1 trillion Wall Street bloodbath DeepSeek left in its wake.
Essentially, DeepSeek set out to build a better mousetrap, something that would turn ChatGPT on its head. And they did just that. DeepSeek’s AI model is much faster and cheaper. How they accomplished it boils down to two factors: smart engineering and access to American chips.
DeepSeek reported using over 2,000 Nvidia chips to train its AI. The chips were export-control compliant for China, but it’s leaving Washington a bit uneasy.
The Trump administration is currently revisiting Biden era policies around giving China access to the powerful tech they need to keep innovating. While the Biden administration did put some new rules in place to help close blind spots and loopholes, the DeepSeek sneak attack shows there’s work to be done.
Is this truly the beginning of the end of the AI hype era? Here, we take a closer look at the writing on the wall and what it means for all of us on the journey.
Deeper Waters
The same morning DeepSeek took the number one spot on Apple’s App Store, Nasdaq 100 futures took a nosedive. Analysts and armchair investors alike see this as a major threat to US large cap stocks.
We can look at DeepSeek as an underdog in the tech space, much scrappier than competitor OpenAI. The ChatGPT parent company was valued at over $157 billion back in October and has 22 times the employee base than DeepSeek. However, the underdogs proved that bigger isn’t always better.
DeepSeek is also over 96% cheaper than ChatGPT and 100% Open Source. Of course, this is turning the stomachs of large-cap US tech giants. AI hardware and software arguably played the most significant role in the bull market of the last two years.
History tends to repeat itself, that is until we learn enough from it to course correct. If DeepSeek’s really all it’s cracked up to be, NVIDIA and other big tech/AI darlings could find themselves in a dot-com-bubble-ish predicament.
History Lesson
Taking a closer look at the dot-com era parallels, we can use Cisco as our case study.
In the early 2000s, Cisco was a leading supplier in networking equipment. Many of the startups at the time bought up Cisco equipment to create their infrastructure. However, once the bubble burst, demand for new hardware dried up and used equipment flooded the marketplace.
This could potentially also happen with NVIDIA, especially if DeepSeek indeed does take over the AI space. We could see the need for chips plummet as AI startups fail in droves and try to find buyers for all the tech they invested in.
Like Cisco relied on dot-com startups to float its success, AI startups are what’s propping up NVIDIA. As we’ve mentioned before, NVIDIA’s valuation is largely influenced by AI hype, which could be in for a massive correction.
We’re well aware that what goes up must come down. It’s always just a matter of when and flavor of catalyst.
Dose of Truth
In this game, we aim to call it like we see it. We take a look at the world, call balls and strikes as accurately as we can, and play until it’s all over.
On the hero’s journey, we’re called to focus on what we see over what we may believe, which isn’t always easy. A hero has to constantly peel back his eyes to uncover the truth, no matter how messy the view.
When there’s money on the line, it literally pays to arm yourself with the facts. When you have the courage to get real and put your beliefs to the side, you’re able to see the world stage with a clearer head. With a clearer head comes clearer decisions, in life and in business.
Change is hard, but it’s inevitable. Winning is never guaranteed and when one company (or person) becomes a leader, the chance of them remaining there lessens as time passes. Whether or not DeepSeek is the ultimate domino, it’s certainly a messenger worth listening to.
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