Analysis from Charles-Henry Monchau, CIO at Syz Group into the latest worries to hit share prices of tech stocks
Out of our “10 Surprises 2025” – is surprise number 6 is “From Mag7 to Lag7 unfolding sooner than we expected? We estimated mid-2025, market sentiment would pick up that we were facing significant competition from China. We felt this development would trigger a sharp decline in Nvidia’s stock price, mirroring the broader downturn affecting the other Magnificent 7.
Now a little-known AI lab out of China has ignited panic throughout Silicon Valley after releasing AI models that can outperform America’s best despite being built more cheaply and with less-powerful chips. DeepSeek, as the lab is called, unveiled a free, open-source large-language model in late December that it says took only two months and less than $6 million to build, using reduced-capability chips from Nvidia called H800s.
The new developments have raised alarms on whether America’s global lead in artificial intelligence is shrinking and called into question big tech’s massive spend on building AI models and datacenters. In a set of third-party benchmark tests, DeepSeek’s model outperformed Meta’s Llama 3.1, OpenAI’s GPT-4o and Anthropic’s Claude Sonnet 3.5 in accuracy ranging from complex problem-solving to math and coding. DeepSeek is to AI what BYD is to EV.
A tech war with China always seemed a short-sighted strategy given China’s vast financial and human capital. The release of DeepSeek undermines one of the core tenets of the AI bull market: that spending tens, if not hundreds of billions of US dollars will build ever-bigger moats for US mega-cap tech stocks. DeepSeek just shredded this belief.
So, has AI reached a dot-com moment? This sounds exaggerated. First, we need to keep in mind that LLM commoditization was inevitable. Two, the Mag 7 are focused on the Artificial general intelligence (AGI) endgame — building trust, infrastructure & ecosystems that China can’t match.
Bottom-line: This news will lead to some short-term volatility but does not look, at first glance, like a real game changer. Let’s also keep in mind that 4 out of the Mag 7 report earnings this week. This will give more visibility to investors with regards to their future growth rate and how realistic consensus expectations are.
