CORRECTION: Market Recap-Week Ending January 24, 2025
Good morning,
In my Monday morning market recap on January 27, I erroneously reported overnight news stating that China developed a chip that will be less expensive than the ones produced by Nvidia. That statement is not accurate.
A Chinese artificial intelligence (AI) company, DeepSeek, reportedly developed an open-source AI platform, similar to ChatGPT, OpenAI and other popular platforms in the US. The correct news was that DeepSeek was able to develop their AI platform for significantly cheaper than the existing US platforms, and that it also require a lower grade of computer chip that demands less energy. While some pundits may question the complete validity of that report, it sent shockwaves across US stocks that are deeply involved in AI, specifically stocks that develop and manufacture chips, like Intel, Advanced Microdevice, and particularly Nvidia. Further, because this AI tool supposedly requires far less power, energy stocks also got punished, particularly those in the nuclear power industry. Many chip and nuclear power stocks lost over 10% on Monday. This loss was very narrow, as the broad stock market exhibited a gain.
There are varied opinions on the short- and long term impact of this story, but many economists believe that the AI-related stocks fell sharply because their stock prices were already inflated. The stock values were quite “expensive” because they were based on continued growth at extraordinarily high rates. Thus, a less energy-intensive and lower cost AI solution could adversely impact future profits in these companies, causing their stock prices to plummet to more “reasonable” levels. While not returning to their prior levels, most of these stocks erased a portion of their losses on Tuesday. Future growth of AI and the far-reaching impacts to other industries are often compared to the invention and impact of the internet decades ago. Thus, AI is not going away, and DeepSeek may have revolutionized the industry in some financial ways. Time will tell whether these stocks return to their previously frothy levels and continue their rapid growth.
Please accept my apology for distributing inaccurate information in Monday’s recap. It is our intent to provide you with unbiased and accurate information.
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