The launch of DeepSeek, a powerful AI chat system from China, is causing major ripples in the semiconductor industry. Its impressive performance and lower cost challenge the dominance of US tech giants like NVIDIA, leading to market volatility and a reevaluation of industry valuations.
When market volatility compresses, as it did over the past five days, seasoned investors and traders should consider what could happen next to bring about a spike in volatility, such as unusual trading volume or options trading activity. This week’s volatile event, coming in to end the first month of 2025, comes all the way across the world from Asia’s powerhouse.
In China, a group of developers has released their own version of an artificial intelligence-driven chat system, such as OpenAI’s ChatGPT. This new system, called DeepSeek, apparently has over twice the computing power at a fraction of the cost, which deeply challenges the current state of semiconductor supply and demand in today’s market. \The market is reacting to the news by selling off one of the most overextended names in the technology sector today. Shares are down over 10% to start the new trading week, bringing other stocks and indexes down with it as it became the biggest holding in some portfolios across the board. Investors will understand why this is happening and how the whole situation likely ends from here, with risks put aside and opportunities kept in focus.The simple answer to this question is a resounding yes, as long as investors trust the information and statistics coming out of China. Another gauge, probably more foolproof, can be taken from actually trying out the product. Now that DeepSeek has become the most downloaded application in the world, chances are these claims aren’t false. \With this in mind, there is a significant conflict in the industry as a whole: whether more can be done with less. This is the proposition coming out of China, which is why the market’s price action rewards some of the technology names in that nation while punishing United States technology stocks. is rallying by over 2.2% in a single day despite this bearish view for technology stocks overall. This price action might mean that the estimates for costs and capital intensity might have gotten away from these giant names. Looking at the recent producer price index (PPI) and manufacturing PMI reports, investors would realize that demand for semiconductors and chips had taken a backseat. However, NVIDIA and other leading names kept producing inventory as if the demand cycle was still at the upper end of the range. As the laws of economics go, oversupply will lead to a needed adjustment. This is why DeepSeek might have chosen to launch now and not earlier, knowing that the data would favor them
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