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DeepSeek causes the Deep Correction

In the last 24 hours, there has been enough information about DeepSeek and how it might impact the AI industry. This led to almost a $1 trillion-plus reduction in USA market capitalisation, with Nvidia's contribution at $600Bn plus. All this chaos and correction might have been in the making for the last quarter or two because DeepSeek has been developing the R1 product for a few months. 


The event has passed its initial shock, and investors thankfully have the opportunity to ask Big Tech about the impact as the majority of them report earnings this week. The main problem for companies will be justifying $50Bn and upwards in capital expenditures (capex) this year to investors.


From the user's perspective, it is clear that they are ready to switch to any app that provides similar quality at a cheaper price. This brings the pricing power into question. Given such a high investment and currently low pricing power with shaky customers, does the valuation factor it in? 


Is it a Sputnik moment that led to the Cold War between the USA and USSR or whether it is a 2001-02 moment when the internet bubble burst?

There will be better quality by the middle of this year as companies are forced to relook at the capex and slow it down while focusing on what they have already built. If this does happen then it is imminent that global assets will correct to bring it in line with the road ahead.

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