Reviewing Winners And Losers Since The DeepSeek Shock Blindsided Markets
Here's an early look at the winners and losers following the DeepSeek shock that roiled the stock market on January 27.
By James Picerno | The Milwaukee Company | jpicerno@themilwaukeecompany.com
The news on January 27 sent a shockwave through the tech world. For a day, at least, the bullish assumptions about artificial intelligence (AI) evaporated in a heartbeat after markets focused on the achievements of DeepSeek, a Chinese AI firm.
The upstart developed a large language model – the engine behind many AI systems – and claims to have done so with a small fraction of the computing power used by top US firms in the field (such as OpenAI via ChatGPT) with comparable performance. The implication: expectations for runaway profits as far as the eye can see for the leaders of the US-based AI supply chain (think Nvidia chips) may need to be revised down.
The panic selling on January 27 has faded and share prices recovered, at least in some corners. But the aftershock lingers as investors reassess the outlook for AI and the companies that stand to benefit from it. An ETF tracking the semiconductor industry (SMH) is still well below its pre-January 27 level. Relative to the Friday close just before the DeepSeek-triggered selloff the following Monday, SMH is down 4.5% through February 10. The reasoning is that DeepSeek’s success relies on less computing power, though many leading US-based AI players have disputed this claim. Nevertheless, it raises the possibility that the most advanced chips manufactured by Nvidia and others may not be as essential as previously assumed.
Big-tech stocks are also nursing losses relative to the trading day before the DeepSeek-shock, based on the average change for the so-called Magnificent-7 (Apple, Microsoft, Alphabet, Amazon, Nvidia, Meta and Tesla). Based on the mean result for this group, the shares overall are still trading near their collective low on January 27.
Yet there are winners, too, perhaps due to the reasoning that DeepSeek’s success may pave the way for wider adoption of AI at a lower cost, which in turn could boost business for cloud computing and software applications. Investors seem to agree and have bid up share prices in both industries following the DeepSeek news on January 24. The First Trust Cloud Computing ETF (SKYY) is up around 3% relative to its pre-January 27 level. The iShares Expanded Tech-Software Sector ETF (IGV) is a close second and is posting a modest rise over the same period. For comparison, the broad US equities market is nearly flat, based on SPDR S&P 500 ETF (SPY). Meantime, digital infrastructure (DTCR) is rallying lately.
It's too soon to know how DeepSeek will change assumptions (and business models) for tech and AI, particularly for the big-tech stocks that previously were priced for perfection. But investors have become more cautious and the market is still struggling to sort out what’s changed, and what hasn’t.
This much is clear: If DeepSeek’s discovery of a low-cost AI business model proves to be correct (and is replicable), the breakthrough will create winners and losers. Exactly who’s on which list remains a work in progress. Meantime, you can still count on one iron law: everything becomes a commodity… eventually.
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