Key Facts and Information:
Deep Seek AI Model: A new Chinese AI model called Deep Seek is emerging, significantly impacting financial markets after the US stock market reached an all-time high.
Cost Efficiency: Deep Seek operates at a cost of $0.27 per million tokens for input processing, which is approximately 9.3 times cheaper than ChatGPT's $2.50 per million tokens. For output processing, Deep Seek is about 9.1 times cheaper than ChatGPT.
AI Capital Expenditures: US tech companies have heavily invested in AI infrastructure, with capital expenditures (capex) reaching $66 billion in Q3 of 2024, more than Luxembourg's total GDP.
Impact on Investment: The lower operating costs of Deep Seek could lead to a reevaluation of spending in AI by these companies, impacting their financial performance and potentially deflating a capital expenditure bubble rather than an AI bubble.
Nvidia and Semiconductor Stocks: Nvidia, which has seen a 1,200% return since ChatGPT's launch, could be negatively affected as less capital investment may flow into AI chip-making, impacting its profits and those of other semiconductor companies.
S&P 500 Composition: Nvidia comprises approximately 7% of the S&P 500. Major tech companies like Apple, Microsoft, Amazon, and Meta collectively account for another 21%.
Profit Margins and Revenue Growth: Tech companies like Meta may benefit from cheaper AI, enhancing profit margins and revenue growth that results from advertising effectiveness instead of requiring more spending.
Market Outlook: Experts believe Deep Seek could foster accessibility to AI for smaller tech companies. The impact on large-cap tech stocks may not lead to a significant market decline similar to the early 2000s technology bubble burst.
Inflation and Wealth Inequality: The rise of AI is expected to exacerbate wealth inequalities and increase capital inflow into financial assets, even as currency purchasing power declines.
Investment Strategy: Amidst current market conditions, there is a cautious shift towards being short-term bearish. The firm Bravo Research has reduced their stock market exposure but plans to redeploy capital during corrections, advocating a positive long-term view on stocks due to AI advancements.
Advice for Investors: For those interested in following analysis and trading strategies, resources are available through Bravo Research.
These points summarize the essential developments and implications related to the emergence of Deep Seek and its potential market influence.