WEBVTT - Bonus Episode: What Is DeepSeek and Why Is It Sinking Stocks?

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<v Speaker 1>Bloomberg Audio Studios, Podcasts, Radio News.

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<v Speaker 2>Good morning, I'm Nathan Hager and I'm Karen Moscow. Here

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<v Speaker 2>are the stories we're following today.

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<v Speaker 3>Thank Karen.

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<v Speaker 4>We begin with concerns over the impact that a Chinese

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<v Speaker 4>artificial intelligence startup could have on big US tech stocks.

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<v Speaker 4>It is called deep Seek. Buzz grew over the weekend

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<v Speaker 4>about deep Seek's latest AI model being cost effective while

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<v Speaker 4>running on less advanced chips. That's casting doubt on the

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<v Speaker 4>validity of the sky high valuations for companies like Nvidia.

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<v Speaker 4>We get more from Bloomberg Markets reporter Mark Cudmore.

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<v Speaker 5>I think this is probably a game changing moment because

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<v Speaker 5>I think suddenly the whole US stocks exceptionalism of the

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<v Speaker 5>last fourteen to fifteen years is probably undermined by this

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<v Speaker 5>because it's simultaneously is good for productivity and growth from

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<v Speaker 5>the rest of the world, good for companies all over

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<v Speaker 5>the rest of the world, and undermines the whole US

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<v Speaker 5>tech phenomenon. So I think it hits from both sides.

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<v Speaker 5>So I think actually last Thursday probably said that the

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<v Speaker 5>long term peak in US share of global market cap.

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<v Speaker 4>Bloomberg's Mark Cudmore says the AI model from Deepseek is

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<v Speaker 4>widely seen as competitive with open Ai and Meta's latest offerings.

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<v Speaker 2>Nathan Chinese, a startup, Deep Seek, is now top of

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<v Speaker 2>the iPhone download charts. De Aboue being hobbled by sanctions.

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<v Speaker 2>Capital dot Com senior market analyst Kyle Rada says it

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<v Speaker 2>raises questions about the market narrative around US tech dominance.

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<v Speaker 6>Anyone's on a sort of group chat with equity investors

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<v Speaker 6>or any kind of equity strategist phones are running hot,

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<v Speaker 6>effectively talking about well, what is this product, how they

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<v Speaker 6>achieved these outcomes, and what does this mean for the

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<v Speaker 6>AI investment boom in the United States. It raises concerns

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<v Speaker 6>about overinvestment in artificial intelligence. It raises concerns that perhaps

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<v Speaker 6>the United States might have the competitive advantage that it

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<v Speaker 6>has over the rest of the world. It raises concerns

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<v Speaker 6>that chip demand won't be as great going forward, either

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<v Speaker 6>in companies like in Video or overvalued.

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<v Speaker 2>Capital dot Com senior market analyst Kyle Rada several of

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<v Speaker 2>the big tech stocks falling on the news and Video

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<v Speaker 2>shares down ten percent. SML is off by about eleven percent.

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<v Speaker 2>Meta and Microsoft are lower by well more than four percent.

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<v Speaker 2>Pall and teer down six percent, super Micro and soundhounder

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<v Speaker 2>off by at least nine percent.

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<v Speaker 4>And Karen This deepseek news comes just as investors brace

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<v Speaker 4>for a slew of earnings from the Magnificent seven Bloombergs.

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<v Speaker 4>John Tucker's following this end of the story in John

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<v Speaker 4>and feels like the news couldn't get any more dicey.

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<v Speaker 3>Well, it could. The company sharers have been near record highs,

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<v Speaker 3>their valuations are stretched, Nathan and add to this the

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<v Speaker 3>fact that the group's profit growth It's projected to come

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<v Speaker 3>in at the slowest pace in almost two years of

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<v Speaker 3>Profits for the seven Giants are projected to increase by

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<v Speaker 3>twenty two percent in the fourth quarter from a year earlier.

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<v Speaker 3>That actually would be the smallest jump since the first

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<v Speaker 3>quarter of twenty twenty three. The seven companies announcements they

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<v Speaker 3>start Wednesday. That's when Microsoft, Meta and Tesla our scheduled report.

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<v Speaker 3>Apple follows Thursday, while we get Alphabet and Amazon next week,

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<v Speaker 3>and then chip maker Nvidia that comes late February. Capex

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<v Speaker 3>also going to be a big theme. Microsoft, Alphabet, Amazon, Meta.

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<v Speaker 3>They're all projected to have spent more than two hundred

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<v Speaker 3>billion dollars combined on capital expenditures in their last fiscal year,

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<v Speaker 3>and they've all pledged to spend more in the current year.

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<v Speaker 3>In New York, I'm John Tucker, Bloomberg Radio.

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<v Speaker 1>Coast to coast on Bloomberg Radio, nationwide on Sirius XM,

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<v Speaker 1>and around the world on Bloomberg dot Com and the

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<v Speaker 1>Bloomberg Business app. This is Bloomberg Daybreak.

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<v Speaker 3>Good morning.

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<v Speaker 4>I'm Nathan Hager. We are seeing a route in tech

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<v Speaker 4>stocks this morning. Chinese startup deep Seek is driving a

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<v Speaker 4>lot of buzz around the idea of a low cost

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<v Speaker 4>artificial intelligence model running on less advanced chips. Capital dot

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<v Speaker 4>Com senior market analyst Kyle Rada says it could mark

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<v Speaker 4>a narrative shift for the US led AI boom.

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<v Speaker 6>That kind of proverbial arms right in technology investment in

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<v Speaker 6>an AOLI investment has taken a very very interesting turn

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<v Speaker 6>when now China looks like a very viable competitor and

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<v Speaker 6>a competitor that you know, perhaps might catch the ire

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<v Speaker 6>of the Trump administration.

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<v Speaker 4>It's Kyle Rada of Capital dot Com and for more.

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<v Speaker 4>We're joined by Bloomberg Radio and television news anchor Critty Gooped. Critty,

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<v Speaker 4>Good morning, what is it about Deepseek's model that we're

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<v Speaker 4>hearing about right now that Scott tech investors clearly so

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<v Speaker 4>spooked this morning.

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<v Speaker 7>Well, good morning, Nathan. This is kind of the worst

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<v Speaker 7>nightmare for a tech bull in that we know so

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<v Speaker 7>much money has been pumped, specifically from the hyperscalers like Amazon, Microsoft, Apple,

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<v Speaker 7>et cetera, who are sitting on trillions of dollars of

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<v Speaker 7>cash just getting pumped into the future of artificial intelligence,

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<v Speaker 7>and this, of course what's created this massive stock market rally.

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<v Speaker 7>The concern here now is that maybe all of that

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<v Speaker 7>money didn't necessarily need to be put into the extent

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<v Speaker 7>that it has in the stock market. Let me walk

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<v Speaker 7>you through some of my math here, and Nathan. For example,

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<v Speaker 7>one Nvidia Blackwell chip is expected to go on the

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<v Speaker 7>market for somewhere like thirty to forty thousand dollars per unit.

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<v Speaker 7>I remember we're talking about a chip alone, and of course

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<v Speaker 7>a ton basically of units hues for one individual AI

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<v Speaker 7>data centers as so many of these companies are trying

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<v Speaker 7>to build out of course hundreds of data centers around

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<v Speaker 7>the world. So you can see very quickly how the

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<v Speaker 7>argument of just how much one chip is valued can

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<v Speaker 7>kind of skyrocket into almost an unknown positive figure. And

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<v Speaker 7>that's the sentimental least that's been fueling the stock market rally.

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<v Speaker 7>But the low and behold deep Seek this Chinese startup

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<v Speaker 7>around AI that's using technology very similar to that of

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<v Speaker 7>open ai, which is already kind of on the front

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<v Speaker 7>of the latest inn AI. They are now saying that

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<v Speaker 7>they can do it on a much cheaper cost. So

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<v Speaker 7>if you're talking about the things you need to get

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<v Speaker 7>to artificial intelligent intelligence, think of it as a recipe.

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<v Speaker 7>You need chips, you need engineers, you need software kind

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<v Speaker 7>of talent who are thinking about this. You need a

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<v Speaker 7>data center, you need an electricity grid, you need things

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<v Speaker 7>like natural gas or oil to power that data center,

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<v Speaker 7>even solar for example. For the folks that are looking

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<v Speaker 7>into that, imagine if that one element of that recipe

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<v Speaker 7>is now able to be significantly cheaper. That's what deep

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<v Speaker 7>set has basically shown over the weekend and in going

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<v Speaker 7>into last week as well, that they can do that.

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<v Speaker 7>They can provide the same sort of technology for a

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<v Speaker 7>much cheaper price. So the reason you're seeing the market

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<v Speaker 7>reflected is saying, well, hold on a second, if you

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<v Speaker 7>can do this for not as expensive of the price

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<v Speaker 7>as previously thought, Then why have these stocks been rallying

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<v Speaker 7>to such an extent? And that's kind of the sentiment

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<v Speaker 7>that's driving this global tech route today.

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<v Speaker 4>And it's a sentiment that had driven you know, so

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<v Speaker 4>much of the rally as you mentioned up to now

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<v Speaker 4>that puts a focus of pretty bright spotlight. Now doesn't

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<v Speaker 4>it on the tech earnings that are coming up as

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<v Speaker 4>soon as Wednesday for a lot of these big hyperscalers.

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<v Speaker 7>It absolutely does? And I think context is everything here, Nathan,

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<v Speaker 7>because remember these hyperscalers. I mean, we talk about just

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<v Speaker 7>a handful of companies that are powering and video. I

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<v Speaker 7>remember and Video over about fifty percent of their kind

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<v Speaker 7>of gains and their customer base is really just from

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<v Speaker 7>a handful of the mag seven names, your Amazon's, your Microsoft's,

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<v Speaker 7>et cetera. And they're able to invest that much because

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<v Speaker 7>they are still sitting on trillions of dollars of cash

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<v Speaker 7>post pandemic and things that haven't really been able to

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<v Speaker 7>be deployed in acquisitions. And this is something that the

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<v Speaker 7>tech playbook is known very well for that you know,

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<v Speaker 7>you kind of bolt on some of these deals you

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<v Speaker 7>buy new technology, think of a Facebook, for example, buying

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<v Speaker 7>Instagram back in the day. It's a similar playbook. They

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<v Speaker 7>haven't really been able to do that and use that cash. Instead,

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<v Speaker 7>they're spending a lot of that cash and investment in

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<v Speaker 7>research and of course in AI.

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<v Speaker 3>Now.

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<v Speaker 7>Basically the element here is that maybe you don't need

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<v Speaker 7>to do that. But I'm going to caveat all of this,

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<v Speaker 7>Nathan by simply saying, this is still experimental technology. This

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<v Speaker 7>is still just one example, and we also don't have

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<v Speaker 7>the full figures on what kind of chips they use,

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<v Speaker 7>just how much it's costing, and whether or not there

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<v Speaker 7>are others like it, or if this is just kind

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<v Speaker 7>of a one hit wonder. Those are still the questions

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<v Speaker 7>that remain in this market.

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<v Speaker 2>This is Bloombery Daybreak, your morning podcast on the stories

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<v Speaker 4>And I'm Nathan Hager. Join us again tomorrow morning for

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<v Speaker 4>here on Bloomberg Daybreak