Over the weekend, news broke that DeepSeek\u2019s AI model\u200a\u2014\u200aa groundbreaking rival to OpenAI\u2019s ChatGPT\u200a\u2014\u200awas reportedly developed in under two months for less than $6 million. That\u2019s 90%+ cheaper than similar models developed by major US tech companies.<\/p>\n
(Technically, the news broke in December\u200a\u2014\u200awe\u2019ve known about DeepSeek since last year. But over the weekend, it became the #1 downloaded app, alerting the investing community at\u00a0large.)<\/em><\/p>\n Parts of this narrative are true. Other parts are greatly exaggerated. But it sent the markets\u200a\u2014\u200aspecifically AI stocks\u200a\u2014\u200ainto a tailspin. Nvidia (NVDA) stock<\/strong><\/a> crashed 17% and lost nearly $600 billion. I\u2019ll share my thoughts on Nvidia at the\u00a0end.<\/p>\n But first let\u2019s answer a few questions\u2026<\/p>\n The US is not as far ahead of China in AI as many thought. That\u2019s one reason for the market reaction.<\/p>\n The more important reason is DeepSeek was supposedly trained at a fraction of the cost of leading US AI models, like ChatGPT and\u00a0Claude.<\/p>\n It is definitely true that DeepSeek is built on innovative training techniques, plus efficient use of hardware. Specifically, it employs parts of the model called \u201cexperts\u201d that only wake up when they\u2019re needed, which saves time, efficiency, and\u00a0money.<\/p>\n BUT\u200a\u2014\u200athe $6 million number is extremely misleading. If you read the DeepSeek paper, it\u2019s clear these costs are only for the official final training run. They exclude all other expenses, like the costs associated with prior research, experiments, architecture, algorithms, and\u00a0data.<\/strong><\/p>\n So while it cost just $6 million to train the model, they probably spent hundreds of millions of dollars on it\u00a0prior.<\/p>\n Investors are worried the DeepSeek news means we need less chips and less AI infrastructure. If its model is really that efficient, do the big tech companies really need to spend historic sums of money on data centers, chips, and associated infrastructure for\u00a0AI?<\/p>\n I do not believe this is a legitimate worry. Keep in mind, AI models were already getting more efficient at a rapid pace. The cost for GPT-4o level intelligence, which is the latest GPT model, has dropped 1,000X in the last 18\u00a0months.<\/strong><\/p>\n The key difference here is that these efficiency gains came from China. A big surprise, for sure\u200a\u2014\u200abut it\u2019s really just a continuation of what\u2019s been happening already.<\/p>\n Most new tech goes through this process. Early versions are expensive. Then costs drop rapidly, which increases demand. As AI gets cheaper to develop and run, more organizations will use it. We\u2019re still going to need A LOT more AI infrastructure.<\/p>\n It depends on how we react. Competition is great for technological advancement. We\u2019re nearly neck and neck with China, and we\u2019re going to have to keep innovating and pushing the boundaries to win this\u00a0race.<\/p>\n It\u2019s all hands on deck. It means even faster innovation and more spending. Probably with renewed support from the government.<\/p>\n No. There\u2019s no AI bubble. Did you know Nvidia\u2019s stock is trading below its five-year average P\/E\u00a0ratio:<\/p>\n Source: Koyfin<\/em><\/p>\n But I do think investors will become more discerning with their AI investments, which is a good thing. It introduced some uncertainty and doubt around the AI theme, which was needed. AI stocks had been going up in a straight\u00a0line.<\/p>\n This is an opportunity to scale into some of the world\u2019s best companies at a better price. We\u2019re still very early in this AI story. The selloff will look like a blip a year from\u00a0now.<\/strong><\/p>\n A mysterious part of this story is that DeepSeek claims it achieved its breakthroughs using older, slower chips. It has to say that, because it\u2019s not supposed to have Nvidia\u2019s latest and greatest chips, as exports to China are\u00a0banned.<\/p>\n I put a 95% probability on the fact that China is not telling the truth about this. All signs point toward DeepSeek having access to a lot more powerful GPUs than it is letting on. My contacts tell me DeepSeek likely had access to 50,000+ cutting-edge Nvidia\u00a0chips.<\/p>\n If you\u2019ve been on the sidelines wanting to invest in NVDA, this is a good buying opportunity.<\/p>\n Of course, it is not the same kind of opportunity as it was in 2018, when we first recommended Nvidia stock<\/a>. Nvidia is a giant tech company now, which means there are limits on how fast it can grow. It\u2019s not going to gain 1,000%\u00a0again.<\/p>\n For that, seek smaller, disruptive AI stocks\u200a\u2014\u200aof which there are\u00a0plenty.<\/p>\n But Nvidia is still the clear leader of the AI boom. It still has the best chips on the\u00a0market.<\/p>\n Bottom line: Nvidia and other AI stocks are a\u00a0buy.<\/strong><\/p>\n For more insights, <\/strong>subscribe to my investing letter The\u00a0Jolt\u26a1<\/em><\/strong><\/a>.<\/em><\/strong><\/p>\n I publish fresh research every Monday &\u00a0Friday.<\/p>\n Click here to subscribe<\/a>.<\/p>\n \u2014 Stephen McBride, Chief Analyst at <\/em>RiskHedge<\/em><\/a><\/p>\n Will AI stocks recover from DeepSeek crash?<\/a> was originally published in Coinmonks<\/a> on Medium, where people are continuing the conversation by highlighting and responding to this story.<\/p>","protected":false},"excerpt":{"rendered":" Over the weekend, news broke that DeepSeek\u2019s AI model\u200a\u2014\u200aa groundbreaking rival to OpenAI\u2019s ChatGPT\u200a\u2014\u200awas reportedly developed in under two months for less than $6 million. That\u2019s 90%+ cheaper than similar models developed by major US tech companies. (Technically, the news broke in December\u200a\u2014\u200awe\u2019ve known about DeepSeek since last year. But over the weekend, it became […]<\/p>\n","protected":false},"author":0,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[2],"tags":[],"class_list":["post-40257","post","type-post","status-publish","format-standard","hentry","category-interesting"],"_links":{"self":[{"href":"https:\/\/mycryptomania.com\/index.php?rest_route=\/wp\/v2\/posts\/40257"}],"collection":[{"href":"https:\/\/mycryptomania.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/mycryptomania.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"replies":[{"embeddable":true,"href":"https:\/\/mycryptomania.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=40257"}],"version-history":[{"count":0,"href":"https:\/\/mycryptomania.com\/index.php?rest_route=\/wp\/v2\/posts\/40257\/revisions"}],"wp:attachment":[{"href":"https:\/\/mycryptomania.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=40257"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/mycryptomania.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=40257"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/mycryptomania.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=40257"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}Why did investors panic about DeepSeek? Did it really <\/em>only cost $6\u00a0million?<\/strong><\/h3>\n
Q: Does DeepSeek mean big tech will spend less on AI infrastructure?<\/strong><\/h3>\n
Is DeepSeek bad for the US because it\u2019s made in\u00a0China?<\/strong><\/h3>\n
Did DeepSeek burst the AI\u00a0bubble?<\/strong><\/h3>\n
Regarding Nvidia\u2026 it essentially has a monopoly on top-level GPU chips. The thesis was that demand for these chips was unlimited. Has that\u00a0changed?<\/strong><\/h3>\n
Is Nvidia stock a buy\u00a0today?<\/strong><\/h3>\n