Business Now | 28 January

Published Jan 28, 2025, 7:18 AM

China's DeepSeek AI shocks Silicon Valley and rocks Wall Street, tech investor Alex Pollak explains what this means to Nvidia and American tech firms. Plus, critical inflation data out tomorrow will decide whether the RBA cuts rates in February.

This is Business Now with Ross Greenwood.

Hi there and welcome the Business Now on this Tuesday. That's great to have your company. I'm Ross Greenwood.

Coming up on the program today.

The biggest share market fall in history, one trillion US dollars wipe from the value of chip maker and Nvidia as a new and cheaper competitor, Deep Seek emerges from China.

Will show the impact on the stock markets.

There were some big changes here today as well, and also on the way it rolls out the future of artificial intelligence. Also tomorrow the latest quarterly inflation number is going to be released. It's the last piece of the puzzle to determine whether the Reserve Bank cuts interest rates in just three weeks time. So all that and plenty more coming up on today's program. But look regard threat with the market stay and the wake of that colossal fall by Invidio shares over and it did have a knock on effect on a range of chip makers and other tech stocks in America. Edward boys with me, and it seems the Aussie market missed out on the worst of that fall.

But there were some casualties, wasn't.

There ross tech stock? Some of them in particularly got hit pretty hard. The overall market opened flat this morning, was dragged down by those tech companies, by property reats, as well energy stocks and utilities ASX two hundred. It finished the day down zero point one two percent, so much better than the US performance. Top performance today included the property investors Dexas and Stockland, travel booking company flight Center, which was upgraded by a broker, and the engineering firms Mona Delphus and Downer Edi, both up in the green. Now here's a look at the worst performers. You can see they're all data centric tech companies.

Intelligence software company.

Newix was hammered down more than twenty percent after saying it we'll post a fall in underlying early earnings in the December half. Rest of the sector was recently heavily sold off as well due to those falls on Wall Street overnight. Data center builders Goodman Group was down eight percent at one point, next DC and Megaport were down two and the data scrubbing company APP was down seven percent at the start of trade. It finished the day flat. The overall top performer today though, was a small iron ore minor called Red Hawk, which owns the rights to the Blacksmith iron or project in Western Australia. Ford Eskew launched a takeover bid for red Hawk today, valuing the business at about two hundred and fifty four million dollars, which the company board is endorsing. This project's close to ford ex Skew's Solomon iron Or Hub contains about two hundred and forty three million tons of iron or, so red Hawk today up almost forty five percent and Ross that is markets, Yes.

Many thanks ed in partnership with Comsek.

Well, now let's try and work out whether that fall in those invidio shares overnight. We'll keep on going with Laura Bes already from Comsect.

Laura, welcome to the program.

What are the futures markets saying right now about how the tech shares are going to open up tonight?

Our time?

Well, good afternoon, Rosswell, the Nazdak is poised to open up by just a fifth of one percent, the broader s and P five hundred is looking to open up completely flat. But keep in mind there's still several hours left until the US market kicks off tonight, so anything can happen between now and then.

But the other thing that's happening right now is many of these big US tech companies they're reporting their earnings their profit updates during this week, So which of those companies should people just keep an eye out for.

Absolutely, there's actually four of the Magnificent Seven handing down there results this week that includes the likes of Meta, Microsoft, and Tesla that'll be on Wednesday night than we have Apple on Thursday night. So very interesting timing for this to happen, and I think that just means investors will have an even more acute focus on their AI spending and also their forward looking guidance as well.

It's interesting to note in that big tech sell off last night, Apple shares were higher, Tesla shares were lower lower. Laura Bezerati, you always good to chat many thanks for your time. So let's try and explain to you why video shares did collapse overnight.

Well.

Nvidia, remember is a computer chip manufacturer. Those high speed gr youtips that it makes Indata centers all around the world. They're the key to the so called generative artificial intelligence, where computers and devices start to think for themselves. For the new Chinese entrant, Deep Seek, which is just two years old, appears to have matched the intuitive intelligence of apps like chat GPT with fewer of the Nvidia chips used, so it means just a fraction of the cost. The II battle is all about commercialization and speed, and Donald Trump wants to tect to reside in America and not China.

This is part of his plan which was announced last week.

To rail at five hundred billion US dollars worth of data centers in America with Open Ai and Oracle. And that's also why Trump today was quick to respond to the emergence of deep seek with the threat of more tariffs.

In particular, in a very near future, we're going to be placing tariffs and fim production of computer chips, semiconductors, and pharmaceuticals to return production of these essential goods to the United States of America. They left us and they went to Taiwan, which is about ninety eight percent of the chip business, by the way, and we want them to come back. And we don't want to give them billions of dollars like they didn't need money. They needed an incentive. And the incentive is going to be they're not going to want to pay a twenty five fifty or even one hundred percent tax. They're going to build their factory with their own money. We don't have to give them money now.

Trump in the last few hours has also directly responded to the threat of deep Seek, saying it's on the big tech companies to innovate even more quickly and cheaper as well.

The release of deep Seek AI from a Chinese company should be a week up call for our industries that we need to be laser focused on competing to win because we have the greatest scientists in the world. Even Chinese leadership told me that now.

One person watching this acutely will be Alex Pollack. He's the founder and chief investment officer at the technology focused funds manager Loftus. Peaky Joy. It's been now many eggs for your time, Alex. This is a washout that might have been coming, but it's happened so quickly. I think that's the surprise to many investors.

Yes, thanks for that, Ross and good afternoon. Look, it's been on the bubble now for at least a year, possibly longer than that, but it's you know, the wave is broken, so to speak. With the knowledge or the announcement from deep Seek that they are they've been able to create an LLLM, a large language model, effectively AI for a fraction of the cost. That has been the Western companies have been doing it in the last few years. So big change and lots of implications.

Okay, but the big issue here is whether the data going into the deep Seat model is going to be reliable given the fact it's constrained by much of the censorship which happens in China, and whether the natural place for artificial intelligence to reside is in the data rich environment of the United States.

And that's one hundred percent correct.

Ross.

You know, Western companies are not going to be comfortable sourcing their AI smarts, so to speak, from a company domiciled in China. They're just not. And so while it's very interesting that deep Seek has been able to do this at a fraction of the cost, it doesn't mean that it's going to get a big welcome from US investors. But it is important that they have done it at a lower cost because it's got implications for AI companies in the West, which need to work out ways to bring down their costs to match those that are coming out of China. Because if obviously, if China can do it, it can be done more broadly, and the point about this is what they're really saying is we can do it with fewer GPUs than has than has been thought today. That's the real point, and that is what sent the nvidio price down last night.

Because the reality is it's a bit like a gold rush. Is that right now the mines are being built, and that really is one if you like boom in itself, but the real boom comes in the future when people start to exploit the artificial intelligence, and in many ways that boom hasn't even started.

That's one hundred percent correct, and your analogy is dead on ross. If you can build a mind for a quarter of the cost then it was before, well that just makes everything that comes out of that mind more cheap for the simple reason that your infrastructure costs have dropped by seventy five percent. So that's what that's the message inside a deep Seek.

Okay, So if we have missed the boom and you can't get into Deep Seat because that's a private company in China, or if you've missed the boom in Video or some of the other shares in the United States such as Oracle, then where do you actually look for the innovations that are going to come as a result of that artificial intelligen.

Well, we've had a lot of success in the downstream software companies like data Dog and Salesforce, etc. Because they use AI, but they use it tailored to their client base and their clients love it. So you know, you can play it through the tools companies, that's the invidios, or you can play it through the enablers and the beneficiaries beneficiaries and that's the software companies if you like, like Adobe and data Dog and Salesforce, et cetera. Those are some of the ideas anyway.

Okay, so then you've got Donald Trump, who was only in the past week, last few dars is his first week of his presidency, announcing a five hundred billion dollar roll out of giant data centers right around America. Now, this is the sort of thing that needs to be actually built if you are to really genuinely exploit artificial intelligence. This week, you've got something totally different happening. But Donald Trump's talking about an almighty boom coming as a.

Result of artificial and intelligence.

Does what's just happened does that affect the potential sort of trajectory of that boom.

It changes the shape of the bill. Bear in mind that that Abilene data center that stargate that Trump is talking about, that's been being that has been They've been building that for well over a year now, so that's not new as it were, but it will affect the way they build it going forward because it's not completed yet, and so that will have implications for the cost structure of that data center. But stargate, and that's what Stargate's all about.

Did you find it ironic last night that there were some shares and Apple was one, for example, that rose in price. So it seemed on one hand that yes, there was this big wash outing companies that might produce chips or you know, sort of be on that side of the market. On the other side, customers of those chip manufacturers all of a sudden they were going forward.

And the reason for that is.

Presumably their raw material to create their own artificial intelligence becomes cheaper.

That's exactly the point. I mean. Apples are hardware and a software player. But the reason that it went up is because they are software players with respect to AI, They're not really in the hardware game where AI is concerned, and so they went up, so to speak, because their exposure to the hardware is less intense than say, in video is and therefore they are a relative beneficiary.

So it's going to be interesting.

Do you sense that their investment opportunity does it come from this washout right now or is it a situation where you sense that the real gains are in the future.

There there are always opportunities that come out of what happens right now than they are now and they are in the future, and so you know, that's our job, that's what we do, and that is the way it is. Yeah, there's always something you can do.

It's going to be fascinating to watch it. Alex Pollux from Loft to speak. Always good to be with you and many thanks for your time today. Thanks Ross, and of course we'll keep you right across what takes place with those share prices right here on Sky News across the evening and into tomorrow as well. We'll coming up after the break. Inflament inflation numbers this week will determine the next move in interest rates and cryptocurrencies.

Well they're thriving. That will explain.

Whose wealth rows whose wealth fell after this latest wash out.

It is great to have your company here on business now.

Well, the key quarterly inflation rate, it's due out tomorrow eleven thirty Eastern time.

It's the last key.

Piece of economic information that the Reserve Bank will receive before deciding on interest rates in three weeks time. Look, the signs do look good for a rate cut. The Reuter's Consensus of Economics Economists forecast suggests heading a headline inflation will be two and a half percent for the year. That's down from two point eight percent a quarter ago. The underlying rate, the trim mean which the RBA watches those closely, is expected to fall from three point five to three point three percent.

Now. Treasurer Jim Charmers spoke about this today.

So when the numbers come out tomorrow, we expect them to show that Australia continues to make meaningful, welcome, encouraging progress in the fight against inflation. But we know that it's not mission accomplished because people are still under pressure. And that's why our cost of living help is so important. The tax cuts, the energy buo relief and all of the cost of living relief that we are providing Australians in difficult times so.

Let's bring a heat west pacxin your economist Matthew has said. Matthew the Treasurer there sees, Look, the government, we're doing a lot of things, cost of living relief, tax cuts, a whole bunch of stuff, and yet we've still got inflation coming down. The reality is inflation might be lower, but the prices haven't actually come down.

They continue to rise. That's right.

We're just think a slow down and the heat coming into prices. So inflation and annual growth terms is moderating. Prices don't in most cases, they don't come back down. We've seen a handful of prices that have reversed, but by and large, most people are still dealing with the same cost of living issues that they've had to struggle with in the last year.

Okay, So if the trim mean comes down on an annual basis from three and a half to three point three percent, though the target band for the Reserve Bank is two to three percent, is that enough to justify the Reserve Bank cutting interest rates in three weeks?

Now?

Look, that's the million dollar question.

Here, is the market expectation for tomorrow's number enough for the RBA to pull the trigger? They've sort of lined us up, shifted the rhetoric over the last couple of meetings, the last meeting in particular, that's gone some way towards opening the door for rate cuts. But you know they're talking about inflations evolving in line with expectations. It's not the only consideration now. If they do get that market expectation tomorrow, it'd be about a point one percentage point downside surprise on the RBA's inflation forecast. But over the same period, the labor market has been considerably more resilient than expected. The unappointment rate is leveled out around it about four percent now over the last six months, so itzer point one on the inflation, worth point three on the unemployment rate. That's the million dollar question. We think they'll still be quite cautious, but it's this is the game we're in. We think they should have started easing before now, but it's gauging the RBA is thinking of the situation. That's important. You know they're sid in December, they weren't quite confident enough to really signal the next movement rates is lower rather than higher. We think it's still baby steps even with a decent update to Mike.

Okay, So, one of the things you do for Westpac is you look at the consumer and you watch their behavior, watch their spending very closely.

You're watching it right now.

So the issue is that if pressure was coming off household, you'd see it in spending money, in spending numbers, you'd see it in consumer confidence. All these things would be pointing towards some improvement.

Is that the reality some improvement, but it's not. It's not kicking up again.

You know.

The tax cuts that came through July last year are estimates are on the data that we're seeing as about seventy five cents, and the dollar has been saved rather than spent, so consumers have been quite.

So that shows that the consumers broadly are cautious.

Cautious.

Absolutely, I've spent a little theyn't get me wrong. The durable spin through the Black Friday, cyber week and the Boxing day sales were pretty strong. But when we look at what's happening outside of that space, whether it's discretionary services or essential service especially still a little bit softer. We're seeing better growth, better than the first half of last year, but it's not shooting the lights out so all in all, the consumers still from the RBA's point of view, the consumers still being quite well behaved. They haven't running up with these tax cuts, but the wider economy is still quite difficult to read, in particular that labor market. Exactly how much slack there is for the RBA to play with at the moment is the central concern.

Four percent unemployment rate is.

Still below any estimate of where the natural rate of unemployment is, which means that while it stays there, you're going to get inflation accelerating slightly. That's not going to help you achieve a sustained return to two to three percent. That's the phrase that the RBA has been using. They're looking for a sustained return. Tomorrow's update, we know the headline's going to come around about two and a half.

Okay.

So the interesting part about this is the so called cost of living crisis. So this is an interesting thing because it was playing against the politics since this where the polesit right now. The people, like in America were grumpy about the so called cost of living. The government's trying to say, we're doing something about it, but the reality is that government can't do enough to actually help the consumer, but the consumer generally cuts their spending when they're worried about their jobs. Right now, there are plenty of jobs, but the consumer is still ultra cautious. How do you reconcile those two things.

Yeah, so look at a lot of that's relating to other parts of the economy. You know, we've seen demand overall running reasonably strongly or better than the consumer space alone, and that's helped maintain demand for employment, and labor market's been relatively tight as a result. And yes, the consumer is a bit of a two phases at the moment. You've got, on the one hand, clear pressures on incomes. So I'd say the consumers under stress, but they're not experiencing distress. So they've come under severe budgetry pressure over the last couple of years, but most of the still retained their jobs. They're able to eat, able to make ends meat by and large, but it's becoming more of a stretch over last cu So.

Cost of living crisis is that overegging the pudding as it were? That maybe what you're talking about is stress, But if it was whole silent employment, it would be distress.

There would be real hurt in.

The economy distress as in a recessionary style environment, where there's no two ways about it, the RBA would be cutting and aggressively.

So it's somewhere in between.

I wouldn't downplay the cost living crisis because it still has been a big deal for particularly low and middle income households over the last couple of years.

It's obviously a big thing for politicians.

And it's a huge thing for politicians of perceptions. And you know, that is a really difficult thing to address for a politician because the gap is really.

Large and there's nothing that politicians can actually do about it. They can do tax cuts, they can do energy relief, but it's never enough.

That's right, and it will come the costs. So at some point, if you go down that path of providing very large compensation for the cost of living pressures, you'll start to see demand pick up again and you'll have more inflation.

And the real answer would be, technically, if the economy was in the right place to have interest straight.

Cuts, that would be the ideal out come.

Yet, yes, it's going to be interesting. So when does the first rate cut happen?

Then, Matt, Look, we think May's the most likely scenario, but tomorrow's update point six means February's life. If we get lower than a point six point five point four, I think the RP will be pretty pleased with that. And given the circumstances around the consumer, that's probably gonna line up a Februy cut.

There you go, Matt has always get the chetty it. Many thanks for your time today, many thanks for your time. Well, well, we spend a bit of time today telling you about the collapse in Nvidia's share price, amongst many others. But look, the collateral damage has really been enormous, especially among the bidding, their owners and creators of other tech giants as well. Formers magazine, which does track the world so that the richest people around the world, has documented some of this carnage. It says that as in Vidia's price fell, we'll almost seven eight percent overnight, the wealth of its founder Jensen Hwang collapsed by twenty point eight billion US dollars. Now, for a bit of perspective, that's almost as much as the total value of Woolworth's here in Australia. But look, don't feel sorry for poor old Jensen. He's still worth one hundred and three billion US, bigger than in Australian terms CSL. There was also Larry Ellison, the founder of Oracle, whose wealth collapsed by twenty seven point six billion. That was as Oracle shares fell by fourteen percent. Then Michael Dell, the founder of Dell Computers, his wealth was down by twelve point four billion US, and the Google founders Larry Page and Serge Bruin down around six billion dollars. Give will take each of them. Even Elon Musk wasn't immune with Tesla down and must squells off by around five billion US dollars.

Be given.

He's wealth is swored by so much since Donald Trump was appointed, more than twenty billion dollars a more. He's feeling no pain at all.

Now.

We tried to find out the Aussie who we thinks wealth fell the most. Expect it's Greg Goodman. According to our info. At least we did some research day. His wealth fell by around one hundred and twenty million dollars Today as a database warehouse develop a, Goodman Group fell by around eight percent on the stock market day. Going the other way though, overnight, Warren Buffett, the Berkshire Hathaway co creator saw his wealth climb by about two point three billion US dollars as the shares rose by two and a half percent. After all the tech rex around him, the ninety four year old oracle of Omaha now the wealthiest person in America, at least for today. Now, just as we go, we can tell you the dal Jones futures for tonight is up bolder, in fact, down by about a quarter of a percent. But look at this Nvidia share price and after ours trading gets closed up by around one point three five percent and those shares one hundred and twenty dollars eighteen So potentially not as much drama on the markets today as we saw in the past twenty four hours. And that is it for the program. Thanks for your company. We'll do it again tomorrow

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