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

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  Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News.
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  Speaker 2: Good morning, I'm Nathan Hager and I'm Karen Moscow. Here
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  Speaker 2: are the stories we're following today.
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  Speaker 3: Thank Karen.
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  Speaker 4: We begin with concerns over the impact that a Chinese
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  Speaker 4: artificial intelligence startup could have on big US tech stocks.
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  Speaker 4: It is called deep Seek. Buzz grew over the weekend
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  Speaker 4: about deep Seek's latest AI model being cost effective while
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  Speaker 4: running on less advanced chips. That's casting doubt on the
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  Speaker 4: validity of the sky high valuations for companies like Nvidia.
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  Speaker 4: We get more from Bloomberg Markets reporter Mark Cudmore.
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  Speaker 5: I think this is probably a game changing moment because
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  Speaker 5: I think suddenly the whole US stocks exceptionalism of the
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  Speaker 5: last fourteen to fifteen years is probably undermined by this
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  Speaker 5: because it's simultaneously is good for productivity and growth from
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  Speaker 5: the rest of the world, good for companies all over
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  Speaker 5: the rest of the world, and undermines the whole US
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  Speaker 5: tech phenomenon. So I think it hits from both sides.
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  Speaker 5: So I think actually last Thursday probably said that the
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  Speaker 5: long term peak in US share of global market cap.
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  Speaker 4: Bloomberg's Mark Cudmore says the AI model from Deepseek is
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  Speaker 4: widely seen as competitive with open Ai and Meta's latest offerings.
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  Speaker 2: Nathan Chinese, a startup, Deep Seek, is now top of
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  Speaker 2: the iPhone download charts. De Aboue being hobbled by sanctions.
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  Speaker 2: Capital dot Com senior market analyst Kyle Rada says it
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  Speaker 2: raises questions about the market narrative around US tech dominance.
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  Speaker 6: Anyone's on a sort of group chat with equity investors
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  Speaker 6: or any kind of equity strategist phones are running hot,
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  Speaker 6: effectively talking about well, what is this product, how they
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  Speaker 6: achieved these outcomes, and what does this mean for the
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  Speaker 6: AI investment boom in the United States. It raises concerns
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  Speaker 6: about overinvestment in artificial intelligence. It raises concerns that perhaps
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  Speaker 6: the United States might have the competitive advantage that it
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  Speaker 6: has over the rest of the world. It raises concerns
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  Speaker 6: that chip demand won't be as great going forward, either
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  Speaker 6: in companies like in Video or overvalued.
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  Speaker 2: Capital dot Com senior market analyst Kyle Rada several of
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  Speaker 2: the big tech stocks falling on the news and Video
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  Speaker 2: shares down ten percent. SML is off by about eleven percent.
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  Speaker 2: Meta and Microsoft are lower by well more than four percent.
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  Speaker 2: Pall and teer down six percent, super Micro and soundhounder
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  Speaker 2: off by at least nine percent.
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  Speaker 4: And Karen This deepseek news comes just as investors brace
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  Speaker 4: for a slew of earnings from the Magnificent seven Bloombergs.
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  Speaker 4: John Tucker's following this end of the story in John
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  Speaker 4: and feels like the news couldn't get any more dicey.
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  Speaker 3: Well, it could. The company sharers have been near record highs,
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  Speaker 3: their valuations are stretched, Nathan and add to this the
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  Speaker 3: fact that the group's profit growth It's projected to come
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  Speaker 3: in at the slowest pace in almost two years of
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  Speaker 3: Profits for the seven Giants are projected to increase by
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  Speaker 3: twenty two percent in the fourth quarter from a year earlier.
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  Speaker 3: That actually would be the smallest jump since the first
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  Speaker 3: quarter of twenty twenty three. The seven companies announcements they
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  Speaker 3: start Wednesday. That's when Microsoft, Meta and Tesla our scheduled report.
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  Speaker 3: Apple follows Thursday, while we get Alphabet and Amazon next week,
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  Speaker 3: and then chip maker Nvidia that comes late February. Capex
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  Speaker 3: also going to be a big theme. Microsoft, Alphabet, Amazon, Meta.
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  Speaker 3: They're all projected to have spent more than two hundred
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  Speaker 3: billion dollars combined on capital expenditures in their last fiscal year,
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  Speaker 3: and they've all pledged to spend more in the current year.
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  Speaker 3: In New York, I'm John Tucker, Bloomberg Radio.
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  Speaker 1: Coast to coast on Bloomberg Radio, nationwide on Sirius XM,
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  Speaker 1: and around the world on Bloomberg dot Com and the
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  Speaker 1: Bloomberg Business app. This is Bloomberg Daybreak.
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  Speaker 3: Good morning.
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  Speaker 4: I'm Nathan Hager. We are seeing a route in tech
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  Speaker 4: stocks this morning. Chinese startup deep Seek is driving a
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  Speaker 4: lot of buzz around the idea of a low cost
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  Speaker 4: artificial intelligence model running on less advanced chips. Capital dot
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  Speaker 4: Com senior market analyst Kyle Rada says it could mark
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  Speaker 4: a narrative shift for the US led AI boom.
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  Speaker 6: That kind of proverbial arms right in technology investment in
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  Speaker 6: an AOLI investment has taken a very very interesting turn
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  Speaker 6: when now China looks like a very viable competitor and
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  Speaker 6: a competitor that you know, perhaps might catch the ire
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  Speaker 6: of the Trump administration.
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  Speaker 4: It's Kyle Rada of Capital dot Com and for more.
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  Speaker 4: We're joined by Bloomberg Radio and television news anchor Critty Gooped. Critty,
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  Speaker 4: Good morning, what is it about Deepseek's model that we're
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  Speaker 4: hearing about right now that Scott tech investors clearly so
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  Speaker 4: spooked this morning.
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  Speaker 7: Well, good morning, Nathan. This is kind of the worst
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  Speaker 7: nightmare for a tech bull in that we know so
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  Speaker 7: much money has been pumped, specifically from the hyperscalers like Amazon, Microsoft, Apple,
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  Speaker 7: et cetera, who are sitting on trillions of dollars of
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  Speaker 7: cash just getting pumped into the future of artificial intelligence,
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  Speaker 7: and this, of course what's created this massive stock market rally.
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  Speaker 7: The concern here now is that maybe all of that
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  Speaker 7: money didn't necessarily need to be put into the extent
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  Speaker 7: that it has in the stock market. Let me walk
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  Speaker 7: you through some of my math here, and Nathan. For example,
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  Speaker 7: one Nvidia Blackwell chip is expected to go on the
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  Speaker 7: market for somewhere like thirty to forty thousand dollars per unit.
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  Speaker 7: I remember we're talking about a chip alone, and of course
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  Speaker 7: a ton basically of units hues for one individual AI
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  Speaker 7: data centers as so many of these companies are trying
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  Speaker 7: to build out of course hundreds of data centers around
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  Speaker 7: the world. So you can see very quickly how the
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  Speaker 7: argument of just how much one chip is valued can
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  Speaker 7: kind of skyrocket into almost an unknown positive figure. And
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  Speaker 7: that's the sentimental least that's been fueling the stock market rally.
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  Speaker 7: But the low and behold deep Seek this Chinese startup
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  Speaker 7: around AI that's using technology very similar to that of
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  Speaker 7: open ai, which is already kind of on the front
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  Speaker 7: of the latest inn AI. They are now saying that
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  Speaker 7: they can do it on a much cheaper cost. So
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  Speaker 7: if you're talking about the things you need to get
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  Speaker 7: to artificial intelligent intelligence, think of it as a recipe.
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  Speaker 7: You need chips, you need engineers, you need software kind
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  Speaker 7: of talent who are thinking about this. You need a
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  Speaker 7: data center, you need an electricity grid, you need things
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  Speaker 7: like natural gas or oil to power that data center,
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  Speaker 7: even solar for example. For the folks that are looking
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  Speaker 7: into that, imagine if that one element of that recipe
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  Speaker 7: is now able to be significantly cheaper. That's what deep
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  Speaker 7: set has basically shown over the weekend and in going
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  Speaker 7: into last week as well, that they can do that.
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  Speaker 7: They can provide the same sort of technology for a
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  Speaker 7: much cheaper price. So the reason you're seeing the market
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  Speaker 7: reflected is saying, well, hold on a second, if you
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  Speaker 7: can do this for not as expensive of the price
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  Speaker 7: as previously thought, Then why have these stocks been rallying
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  Speaker 7: to such an extent? And that's kind of the sentiment
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  Speaker 7: that's driving this global tech route today.
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  Speaker 4: And it's a sentiment that had driven you know, so
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  Speaker 4: much of the rally as you mentioned up to now
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  Speaker 4: that puts a focus of pretty bright spotlight. Now doesn't
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  Speaker 4: it on the tech earnings that are coming up as
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  Speaker 4: soon as Wednesday for a lot of these big hyperscalers.
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  Speaker 7: It absolutely does? And I think context is everything here, Nathan,
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  Speaker 7: because remember these hyperscalers. I mean, we talk about just
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  Speaker 7: a handful of companies that are powering and video. I
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  Speaker 7: remember and Video over about fifty percent of their kind
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  Speaker 7: of gains and their customer base is really just from
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  Speaker 7: a handful of the mag seven names, your Amazon's, your Microsoft's,
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  Speaker 7: et cetera. And they're able to invest that much because
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  Speaker 7: they are still sitting on trillions of dollars of cash
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  Speaker 7: post pandemic and things that haven't really been able to
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  Speaker 7: be deployed in acquisitions. And this is something that the
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  Speaker 7: tech playbook is known very well for that you know,
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  Speaker 7: you kind of bolt on some of these deals you
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  Speaker 7: buy new technology, think of a Facebook, for example, buying
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  Speaker 7: Instagram back in the day. It's a similar playbook. They
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  Speaker 7: haven't really been able to do that and use that cash. Instead,
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  Speaker 7: they're spending a lot of that cash and investment in
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  Speaker 7: research and of course in AI.
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  Speaker 3: Now.
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  Speaker 7: Basically the element here is that maybe you don't need
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  Speaker 7: to do that. But I'm going to caveat all of this,
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  Speaker 7: Nathan by simply saying, this is still experimental technology. This
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  Speaker 7: is still just one example, and we also don't have
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  Speaker 7: the full figures on what kind of chips they use,
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  Speaker 7: just how much it's costing, and whether or not there
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  Speaker 7: are others like it, or if this is just kind
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  Speaker 7: of a one hit wonder. Those are still the questions
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  Speaker 7: that remain in this market.
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