Bonus Episode: What Is DeepSeek and Why Is It Sinking Stocks?

Published Jan 27, 2025, 10:44 AM

In this bonus episode from Bloomberg Daybreak, hosts Nathan Hager and Karen Moskow examine the emergence of DeepSeek. The Chinese artificial intelligence startup is rocking global technology stocks, raising questions over America’s technological dominance.   
Buzz grew over the weekend about DeepSeek’s latest AI model being cost-effective while running on less-advanced chips, casting doubt on the validity of the rich valuations for companies like Nvidia.   
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Bloomberg Audio Studios, Podcasts, Radio News.

Good morning, I'm Nathan Hager and I'm Karen Moscow. Here are the stories we're following today.

Thank Karen.

We begin with concerns over the impact that a Chinese artificial intelligence startup could have on big US tech stocks. It is called deep Seek. Buzz grew over the weekend about deep Seek's latest AI model being cost effective while running on less advanced chips. That's casting doubt on the validity of the sky high valuations for companies like Nvidia. We get more from Bloomberg Markets reporter Mark Cudmore.

I think this is probably a game changing moment because I think suddenly the whole US stocks exceptionalism of the last fourteen to fifteen years is probably undermined by this because it's simultaneously is good for productivity and growth from the rest of the world, good for companies all over the rest of the world, and undermines the whole US tech phenomenon. So I think it hits from both sides. So I think actually last Thursday probably said that the long term peak in US share of global market cap.

Bloomberg's Mark Cudmore says the AI model from Deepseek is widely seen as competitive with open Ai and Meta's latest offerings.

Nathan Chinese, a startup, Deep Seek, is now top of the iPhone download charts. De Aboue being hobbled by sanctions. Capital dot Com senior market analyst Kyle Rada says it raises questions about the market narrative around US tech dominance.

Anyone's on a sort of group chat with equity investors or any kind of equity strategist phones are running hot, effectively talking about well, what is this product, how they achieved these outcomes, and what does this mean for the AI investment boom in the United States. It raises concerns about overinvestment in artificial intelligence. It raises concerns that perhaps the United States might have the competitive advantage that it has over the rest of the world. It raises concerns that chip demand won't be as great going forward, either in companies like in Video or overvalued.

Capital dot Com senior market analyst Kyle Rada several of the big tech stocks falling on the news and Video shares down ten percent. SML is off by about eleven percent. Meta and Microsoft are lower by well more than four percent. Pall and teer down six percent, super Micro and soundhounder off by at least nine percent.

And Karen This deepseek news comes just as investors brace for a slew of earnings from the Magnificent seven Bloombergs. John Tucker's following this end of the story in John and feels like the news couldn't get any more dicey.

Well, it could. The company sharers have been near record highs, their valuations are stretched, Nathan and add to this the fact that the group's profit growth It's projected to come in at the slowest pace in almost two years of Profits for the seven Giants are projected to increase by twenty two percent in the fourth quarter from a year earlier. That actually would be the smallest jump since the first quarter of twenty twenty three. The seven companies announcements they start Wednesday. That's when Microsoft, Meta and Tesla our scheduled report. Apple follows Thursday, while we get Alphabet and Amazon next week, and then chip maker Nvidia that comes late February. Capex also going to be a big theme. Microsoft, Alphabet, Amazon, Meta. They're all projected to have spent more than two hundred billion dollars combined on capital expenditures in their last fiscal year, and they've all pledged to spend more in the current year. In New York, I'm John Tucker, Bloomberg Radio.

Coast to coast on Bloomberg Radio, nationwide on Sirius XM, and around the world on Bloomberg dot Com and the Bloomberg Business app. This is Bloomberg Daybreak.

Good morning.

I'm Nathan Hager. We are seeing a route in tech stocks this morning. Chinese startup deep Seek is driving a lot of buzz around the idea of a low cost artificial intelligence model running on less advanced chips. Capital dot Com senior market analyst Kyle Rada says it could mark a narrative shift for the US led AI boom.

That kind of proverbial arms right in technology investment in an AOLI investment has taken a very very interesting turn when now China looks like a very viable competitor and a competitor that you know, perhaps might catch the ire of the Trump administration.

It's Kyle Rada of Capital dot Com and for more. We're joined by Bloomberg Radio and television news anchor Critty Gooped. Critty, Good morning, what is it about Deepseek's model that we're hearing about right now that Scott tech investors clearly so spooked this morning.

Well, good morning, Nathan. This is kind of the worst nightmare for a tech bull in that we know so much money has been pumped, specifically from the hyperscalers like Amazon, Microsoft, Apple, et cetera, who are sitting on trillions of dollars of cash just getting pumped into the future of artificial intelligence, and this, of course what's created this massive stock market rally. The concern here now is that maybe all of that money didn't necessarily need to be put into the extent that it has in the stock market. Let me walk you through some of my math here, and Nathan. For example, one Nvidia Blackwell chip is expected to go on the market for somewhere like thirty to forty thousand dollars per unit. I remember we're talking about a chip alone, and of course a ton basically of units hues for one individual AI data centers as so many of these companies are trying to build out of course hundreds of data centers around the world. So you can see very quickly how the argument of just how much one chip is valued can kind of skyrocket into almost an unknown positive figure. And that's the sentimental least that's been fueling the stock market rally. But the low and behold deep Seek this Chinese startup around AI that's using technology very similar to that of open ai, which is already kind of on the front of the latest inn AI. They are now saying that they can do it on a much cheaper cost. So if you're talking about the things you need to get to artificial intelligent intelligence, think of it as a recipe. You need chips, you need engineers, you need software kind of talent who are thinking about this. You need a data center, you need an electricity grid, you need things like natural gas or oil to power that data center, even solar for example. For the folks that are looking into that, imagine if that one element of that recipe is now able to be significantly cheaper. That's what deep set has basically shown over the weekend and in going into last week as well, that they can do that. They can provide the same sort of technology for a much cheaper price. So the reason you're seeing the market reflected is saying, well, hold on a second, if you can do this for not as expensive of the price as previously thought, Then why have these stocks been rallying to such an extent? And that's kind of the sentiment that's driving this global tech route today.

And it's a sentiment that had driven you know, so much of the rally as you mentioned up to now that puts a focus of pretty bright spotlight. Now doesn't it on the tech earnings that are coming up as soon as Wednesday for a lot of these big hyperscalers.

It absolutely does? And I think context is everything here, Nathan, because remember these hyperscalers. I mean, we talk about just a handful of companies that are powering and video. I remember and Video over about fifty percent of their kind of gains and their customer base is really just from a handful of the mag seven names, your Amazon's, your Microsoft's, et cetera. And they're able to invest that much because they are still sitting on trillions of dollars of cash post pandemic and things that haven't really been able to be deployed in acquisitions. And this is something that the tech playbook is known very well for that you know, you kind of bolt on some of these deals you buy new technology, think of a Facebook, for example, buying Instagram back in the day. It's a similar playbook. They haven't really been able to do that and use that cash. Instead, they're spending a lot of that cash and investment in research and of course in AI.

Now.

Basically the element here is that maybe you don't need to do that. But I'm going to caveat all of this, Nathan by simply saying, this is still experimental technology. This is still just one example, and we also don't have the full figures on what kind of chips they use, just how much it's costing, and whether or not there are others like it, or if this is just kind of a one hit wonder. Those are still the questions that remain in this market.

This is Bloombery Daybreak, your morning podcast on the stories making news from Wall Street to Washington and beyond.

Look for us on your podcast feed by six am Eastern each morning, on Apple, Spotify, or manywhere else listen.

You can also listen live each morning starting at five am Wall Street time on Bloomberg eleven three to zero in New York, Bloomberg in ninety nine to one in Washington, Bloomberg ninety two nine in Boston, and nationwide on serious XM Channel one twenty one.

Plus listen coast to coast on the Bloomberg Business app now with Applecarplay and Android auto interfaces.

And don't forget to subscribe to Bloomberg News Now. It's the latest news whenever you want it in five minutes or less. Search Bloomberg News Now on your favorite podcast platform to stay informed all day long. I'm Karen Moscow.

And I'm Nathan Hager. Join us again tomorrow morning for all the news you need to start your day right here on Bloomberg Daybreak

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