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Chief Investment Strategist | A seismic shift rattled the tech world this week... A Chinese AI startup named DeepSeek burst onto the scene, challenging the dominance of established American tech giants. The realization that a ChatGPT competitor - and perhaps a better one, available for free no less - sent shockwaves through major tech stocks. Nvidia, the semiconductor company with the hottest, most in-demand GPU chips used in AI - and the most widely held stock in the world - saw a staggering 17% drop on Monday. It chopped $589 billion off of Nvidia's value... and was by far the biggest single day loss of market cap by any company. Why is DeepSeek causing such a stir? It all comes down to cost. Deep Dive DeepSeek, based in Hangzhou, Zhejiang is a Chinese artificial intelligence company founded and run by Liang Wenfeng. In 2021, while running his High-Flyer hedge fund that used AI to generate outsized return, Liang began buying thousands of Nvidia GPUs. He ultimately amassed 10,000 Nvidia A100 GPUs before the U.S. government imposed chip restrictions on China. High-Flyer then financed the start of DeepSeek in 2023, with Liang as its CEO. The company was founded to operate as an LLM (large language model) developer. DeepSeek developed an AI assistant powered by the DeepSeek-V3 model, boasting over 600 billion parameters. This state-of-the-art AI is designed to answer questions and enhance users' lives efficiently. Upon its release, DeepSeek's AI assistant quickly gained traction, surpassing ChatGPT to become the highest-rated free app on the U.S. iOS App Store by the end of January 2025. Its user-friendly interface and advanced capabilities contributed to its rapid rise in popularity. DeepSeek stunned the AI world with its cost-effective development. The company claims to have trained its AI model using approximately 2,000 Nvidia H800 GPUs over 55 days, at a cost of around $5.58 million. This is a fraction of the expenditure by U.S. tech giants, highlighting DeepSeek's efficient approach to AI development. Deep Cut The emergence of DeepSeek has had a profound impact on major tech stocks... and has fired a warning shot across the sector. On January 27, Nvidia's stock plummeted by 17% as part of a broader selloff that wiped out about $1 trillion from U.S. exchanges, affecting other tech giants like Microsoft and Alphabet. DeepSeek's ability to develop a competitive AI model at a significantly lower cost and with fewer resources challenges the prevailing belief that advanced AI development requires substantial capital and cutting-edge hardware. Investors now have to reassess the valuations of companies heavily invested in expensive AI infrastructure, causing stock prices to tumble. DeepSeek's rise signals a potential shift in the AI industry toward more cost-effective and open-source models. Companies that can adapt to this new paradigm may find opportunities for growth, while those reliant on high-cost, proprietary models could face challenges. Now it's time to pay attention to what companies will benefit from this shift and which may struggle to keep up. Companies that embrace open-source AI models and focus on cost-effective solutions are likely to do well... like Microsoft (MSFT), Google (GOOG), and Meta (META). On the other hand, firms heavily invested in expensive, proprietary AI infrastructure may find themselves at a disadvantage, like Apple (AAPL) and Oracle (ORCL). The market is now favoring innovation that delivers efficiency and accessibility, challenging the traditional players to adapt or risk obsolescence. DeepSeek's emergence is a wake-up call for the tech industry and for investors. Mega-cap tech leaders are going to have to monetize their AI spend a lot sooner now that competitors look to be able to play catch up with far fewer resources and billions less in capital. The next AI race is on... and we'll be betting on the winners. Cheers, Shah P.S. Speaking of winners... did you know there's a group of "Undefeated Stocks" that have risen during specific months for the past five to 10 years? My Alpha Money Flow subscribers know it... after all, their December undefeated play returned 108% in 6 weeks. Then January's undefeated play returned 100% in just 2 weeks. February's play goes live on Monday. Get the ticker for free right now. Want more content like this? | | | | | | 
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