Anyone active on X over the weekend undoubtedly saw the growing chatter around Chinese AI start-up DeepSeek. Its meteoric rise to the top of the Apple Apps download charts has been impressive. The company released its R1 model last Monday and explained how to build a sophisticated LLM on a fraction of the cost of some of its more powerful competitors, mostly run or sponsored by US tech giants.
DeepSeek’s development has been in an era where China has been restricted from accessing the highest-end AI technology and chips, with limited access to Nvidia’s products. So for now this raises the potential for stratospheric valuations in US tech firms to be questioned. No wonder then why given this news, it has been a messy day for US equities with Nvidia down -18%, one of its biggest drops on record (resulting in over $600bn in market cap lost). Given that 10yr UST yields are -11bps as well this morning it shows how crucial a handful of US stocks are to global macro.
This is an opportunity to show the stunning rise of Nvidia from an earnings point of view. The CoTD shows it’s gone from LTM earnings of around $4bn two years ago to around $63bn in the last quarterly release. For context, this is around half the total earnings made by listed stocks in each of UK, Germany and France over the last 12 months. The forecasts are for Nvidia to continue to see significant earnings growth. Not surprisingly, this is the chart of the day of DB’s Jim Reid. It could, in fact, also be considered the most important chart in the world right now because if Nvidia goes, everything else will follow.
As Reid notes, “this is a company that has gone from relative earnings obscurity to one of the most profitable in the world inside two years and the largest company in the world as of Friday night.” The problem is that the AI industry is embryonic. And it’s almost impossible to know how it will develop or what competition current winners might face even if you fully believe in its potential to drive future productivity. The stratospheric rise of DeepSeek reminds us of this. The collapse and bankruptcy of Global Crossing which at one point controlled most of the internet traffic pipes and was one of the largest companies in the world, is another reminder.
You mean Global Crossing isn’t a trillion dollar company? (Bonus points if you know who that is without googling) https://t.co/d7d4uVl8l6
— zerohedge (@zerohedge) January 24, 2025
That said, for those looking for positives, the Mag 7 fell -18% in the space of a month last summer, before bouncing back to all-time highs. And even with the latest selloff, it was only on Thursday that the S&P 500 was at an all-time high. That said, this news is specific to the Mag 7, unlike the turmoil last summer that was driven by fears of a broader downturn thanks to weak data.
Tyler Durden
Mon, 01/27/2025 – 13:15
