Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2: Welcome to the Bloomberg Daybreak Asia podcast. I'm Deck Chrisner.
Speaker 2: On today's episode, we'll be taking a deep dive into
Speaker 2: Deep Seek. This is a Chinese artificial intelligence startup and
Speaker 2: its aimodel, known as R one, appears to rival the
Speaker 2: performance of US products like Chat GPT. Perhaps its biggest
Speaker 2: selling point is that the model was developed at a
Speaker 2: fraction of the cost of competing products, and that could
Speaker 2: make high valuations of some USAI related companies a little
Speaker 2: tough to justify. Let me give you one example today
Speaker 2: in US trading, shares in the AI chip leader in Nvidia,
Speaker 2: we're down nearly seventeen percent, and that led to a
Speaker 2: loss in the Nasdaq one hundred of three percent. In
Speaker 2: a moment, we'll be speaking with Jamie Cox. He is
Speaker 2: managing partner at Harris Financial Group. But let's begin in
Speaker 2: home with Bloomberg Tech editor of Vlad Savov. It's always
Speaker 2: a pleasure to chat with you've Lad. This feels like
Speaker 2: a major inflection point in the development of AI models. First,
Speaker 2: let me get your reaction and what you're hearing among
Speaker 2: Hong Kongers. Now that follow the tech space.
Speaker 3: Well, the interesting thing about deep Seek is it's a
Speaker 3: company that has rocketed to global renown and recognition today
Speaker 3: and over the past week, but it has been known
Speaker 3: about ever since it's beginning in twenty twenty three. It's
Speaker 3: one that our Bloomberg Intelligence colleagues have been taken a
Speaker 3: close look at because it is developing such a hot
Speaker 3: area of new software as AI. It has been developing
Speaker 3: its own models, so people here have been aware of it.
Speaker 3: It has been on the radar. But really the thing
Speaker 3: that has happened is it hit a certain threshold of recognition.
Speaker 3: Part of it really was Silicon Valley people, venture capitalists.
Speaker 3: They took an interest, they tried it out. They found
Speaker 3: out that it is, indeed, like you mentioned, as competitive,
Speaker 3: as the company itself says. It has posted some benchmark
Speaker 3: results on this website. It has claimed already that it
Speaker 3: competes with open Ai, but frankly, every AI model developer
Speaker 3: claims that they compete or they can rival open Ai.
Speaker 3: The amazing thing, and the really really impressive thing is
Speaker 3: that the people who know this stuff, which I can't
Speaker 3: claim that I'm an expert in it, they all recognize
Speaker 3: it as a breakthrough so we need to recognize that too.
Speaker 3: And it's also worth mentioning here that the company has
Speaker 3: put out a research paper of its own and they've
Speaker 3: said that the costs of training this model are less
Speaker 3: than six million dollars. Now, that excludes a whole bunch
Speaker 3: of costs, so we can't be exactly sure about how
Speaker 3: much more affordable it is for this small company to
Speaker 3: develop it, but it is very clearly a difference maker
Speaker 3: when it comes to our assessment of how much it
Speaker 3: costs to develop a world leading AI model.
Speaker 2: Yeah, I think to be fair, our analyst here in
Speaker 2: New York, Man Deep Saying, pointed out that our one
Speaker 2: was to developed using output from open Ai, Anthropic and
Speaker 2: LAMA to train the models. So it's almost as though
Speaker 2: AI is training AI a little bit. And I think
Speaker 2: that what may have precipitated or at least engendered a
Speaker 2: lot of the selling that we saw in the US
Speaker 2: in the last session was the rating on the Apple
Speaker 2: app Store. I think R one rose to the top level.
Speaker 2: Can we agree though, that the current Western approach to AI.
Speaker 2: I'm talking here about the reliance on those high end chips,
Speaker 2: extensive computing power, and vast amounts of electricity. Is that
Speaker 2: being challenged to some extent.
Speaker 3: Yes, we can agree that it's challenged. We cannot agree
Speaker 3: that it's a foregone conclusion that it's going to be
Speaker 3: going away. One thing to bear in mind here, which
Speaker 3: I think is very important, is that Deepsek's model has
Speaker 3: delivered an impressive chatbot. It only works with text. So
Speaker 3: what we have is a breakthrough and an impressive achievement,
Speaker 3: but it's within one medium. One of the things that
Speaker 3: you have to bear in mind is that the more
Speaker 3: advanced chips, the ones that are making a video is
Speaker 3: still a multi trillion dollar company, even with its massive
Speaker 3: share price drop. The thing that drives it is that
Speaker 3: you want those chips in order to get to the
Speaker 3: next stage of AI, specifically generative AI. So at the
Speaker 3: moment we're talking about generating text, but the next evolution
Speaker 3: is going to be generating images. Generating video is stuff
Speaker 3: that open ai and other services have already made major
Speaker 3: advances in, and that's where deep seek is probably going
Speaker 3: to need a lot more hardware than it's used just
Speaker 3: for text.
Speaker 2: So it may be too much to say that deep
Speaker 2: seek has been able to engineer a way around the
Speaker 2: export bands that were put in place during the Biden administration,
Speaker 2: the bands that basically kept China from accessing some of
Speaker 2: those advanced semiconductors manufactured by and Vidiot. We can't really
Speaker 2: articulate that, can we?
Speaker 3: Yes, this is correct. Now, there are two things to
Speaker 3: say here. Firstly, those bands and those trade cubs. Everyone
Speaker 3: in the industry said, this is only going to encourage
Speaker 3: China and Chinese companies to focus on more efficient methods.
Speaker 3: So this is exactly what is being predicted by the industry.
Speaker 3: They said, China will focus on more light, more small
Speaker 3: scale models, and Deep Seek is the fruits of those efforts.
Speaker 3: That being said, we cannot say that the sanctions are
Speaker 3: not effective because Deep Seek CEO and founder has himself said,
Speaker 3: the thing that Deep Seak requires right now is not
Speaker 3: more money, is not more investment, is actually access to
Speaker 3: those most advanced ships. The embargo is e cosed, the
Speaker 3: ban on accessing those video chips is the thing that's
Speaker 3: holding Deep Sea back.
Speaker 2: Are we likely to see some type of fragmentation within
Speaker 2: the artificial intelligence industry, which is to say that you
Speaker 2: have certain products that have been produced at low cost
Speaker 2: being rolled out at lower prices, and maybe those products
Speaker 2: will see greater adoption and some of the more sophisticated
Speaker 2: elements of artificial intelligence you'll have to pay a premium for,
Speaker 2: and that segment of the market will be controlled by
Speaker 2: very few companies.
Speaker 4: Yes, I can very.
Speaker 3: Much see that. One of the things that has been
Speaker 3: the trend over the past few months is actually opening
Speaker 3: Ey's revenue generation has accelerated, and it's one of the
Speaker 3: trends that we're seeing. And if you had asked me
Speaker 3: to predict what would be the big trend in AI
Speaker 3: in twenty twenty five, it is exactly this taking all
Speaker 3: that investment, taking all that developed technology, and turning into
Speaker 3: products that you can sell subscriptions or in other ways
Speaker 3: entices people to spend money on them. That is still
Speaker 3: going to continue to be the case the premium products.
Speaker 3: Open ai sells a two hundred dollars per month pro product.
Speaker 3: There is an audience for that. But that being said,
Speaker 3: the deep seek approach, it releases the software as an
Speaker 3: open source software, so you as an individual can take
Speaker 3: that and piggyback on top of it and decide that
Speaker 3: you want to build your own specific chatbook. And a
Speaker 3: good analogy that I have for this is when you
Speaker 3: think about banking. You have the traditional banks, the ones
Speaker 3: with branches and all those overheads and costs, and then
Speaker 3: you have the digit banks, the ones that are mobile only,
Speaker 3: app only, and because of that efficiency that those other
Speaker 3: banks have, they can offer you better rates and better office.
Speaker 2: So to go back to the hardware software issue, it
Speaker 2: seems like Chinese AI engineers have found a way to
Speaker 2: work with the software given the limitations of the hardware
Speaker 2: that they have been forced to use because of those
Speaker 2: US export controls. But I'm wondering whether on the semiconductor
Speaker 2: industry side of things in China that we may see
Speaker 2: some sort of breakthrough when it comes to advanced AI
Speaker 2: chips in the near future. Is that a possibility.
Speaker 3: Yes, There's two things to say here. Firstly, from what
Speaker 3: little we know about Deep Seek, and bear in mind
Speaker 3: it's a very very young startup. It came out of
Speaker 3: an AI hedge fund AI driven hedge fund, so we
Speaker 3: still don't know that much about it. But from interviews
Speaker 3: with the founder, he has said that most of his
Speaker 3: engineers are graduates from China's universities. They are entirely domestic
Speaker 3: Chinese engineers, so credit to the company is educational system
Speaker 3: now on the semiconductor front, there are technical limitations and challenges.
Speaker 3: The classic one is EUV machines that only ASML makes
Speaker 3: and is prevented from selling to China. Solving that issue.
Speaker 3: We haven't seen much evidence of China doing it, but
Speaker 3: then again, it may be something along the lines of
Speaker 3: deep Seek. We never saw deep Seek. We were only
Speaker 3: aware that is building a model. We never saw it
Speaker 3: doing a breakthrough until today, until it was actually ready
Speaker 3: to come out there.
Speaker 2: Flight, We'll leave it there, Thank you so much. Let's
Speaker 2: have of Bloomberg Tech editor in Asia joining us from
Speaker 2: Hong Kong here on the Daybreak Asia podcast. Welcome back
Speaker 2: to the Daybreak Asia Podcast. I'm Doug Chrisner. We continue
Speaker 2: with our deep dive on deep Seek. News of the
Speaker 2: Chinese startups new Chat bought r one, sparked to sell
Speaker 2: off in many AI related names globally, and it wiped
Speaker 2: out nearly a trillion dollars in market cap from US
Speaker 2: and European tech names. So now a key question is
Speaker 2: on capex spending plans for some of America's biggest companies.
Speaker 2: Joining me now for a closer look. As Jamie Cox
Speaker 2: is managing partner at Harris Financial Group. Jamie, thank you
Speaker 2: so much for being with us. Certainly was an interesting
Speaker 2: day where AI was concerned. How do you make sense
Speaker 2: of the market reaction to this Deep Seek story.
Speaker 4: I think the market's reaction was quite positive. I mean,
Speaker 4: there were only.
Speaker 1: Eight dollstocks that were down today. Sixty percent of the
Speaker 1: S and P five hundred companies were up. So this
Speaker 1: was very much an isolated day for you know, chip stocks.
Speaker 1: This was sort of the moment in time where you
Speaker 1: see disruption take hold, and when you start to see
Speaker 1: things like AI disruption and the possibility that maybe companies
Speaker 1: are overinvesting in AI infrastructure, you have to sit back
Speaker 1: and think a minute and ask yourself, you know, if
Speaker 1: Nvidia can legitimately sell thirty thousand dollars chips or not.
Speaker 1: So I think it made a lot of investors think.
Speaker 1: But a lot of investors have been worried about overvaluation in.
Speaker 4: These stocks anyway.
Speaker 1: So I think that the Deep Seek situation sort of precipitated.
Speaker 1: Was the precipitating event for things that may have happened anyway.
Speaker 1: So I think that's one thing to consider.
Speaker 4: The second is I actually think this is a good thing.
Speaker 1: It's very important that we not get COMPLACENTECH in our
Speaker 1: technology prowess in the United States. We need to realize
Speaker 1: that these technologies can be created at scale all over
Speaker 1: the world.
Speaker 4: And what Deep.
Speaker 1: Seek basically did was kick off what I believe will
Speaker 1: be an arms race, maybe a spot Nick moment for
Speaker 1: the United States where we get really serious in the
Speaker 1: prospect of competition from around the world will actually propel
Speaker 1: AI developed forward. So I'm actually very positive both on
Speaker 1: the development of AI and actually, and ironically, even though
Speaker 1: the stocks we took a beating today, I actually think
Speaker 1: that it further illustrates the need to build out AI
Speaker 1: infrastructure because what we're seeing now is disruption in basically
Speaker 1: AI one point zero, which will bring about the possibility
Speaker 1: of AI two point zero, which will make it universally
Speaker 1: usable and much more widely adopted than what we see
Speaker 1: right now. So I'm pretty excited about what we see.
Speaker 1: This is just a moment in time in the market,
Speaker 1: and we'll be looking back on this as one of
Speaker 1: the best buying opportunities in these stocks at quite some time.
Speaker 2: So one of the things that I've found very compelling
Speaker 2: here is that deep Seek's chatbot, known as R one
Speaker 2: was apparently trained using less than cutting edge semiconductors, and
Speaker 2: that in turn required much less energy consumption. So I
Speaker 2: hear what you're saying when it comes to the sell
Speaker 2: off that we had in certain semiconductor names today. But
Speaker 2: I was also struck by the fact that Constellation Energy
Speaker 2: was down twenty percent. How does the Deep Seek story
Speaker 2: change the conversation around power?
Speaker 4: So there's two parts of that question. I'll address the
Speaker 4: power one first. There have been.
Speaker 1: Reports of inability for companies to get adequate power sources
Speaker 1: to data centers. So companies like Microsoft Amazon are putting
Speaker 1: in personal nuclear reactors to actually power data centers, and
Speaker 1: companies like Constellation Energy provide those services. So if the
Speaker 1: data centers are not going to be as plentible and
Speaker 1: therefore the power sources will not be needed, that's why
Speaker 1: you see these knock on effects. It's one of the
Speaker 1: reasons why the power story had been one of the
Speaker 1: sort of tertiary ways to play the AI story without
Speaker 1: actually buying the tech stocks. So that's why they're sort
Speaker 1: of connected together in a trade.
Speaker 4: I don't believe that.
Speaker 1: Either story will turn out to be, you know, the
Speaker 1: sell off today will be the right one.
Speaker 4: I think it's actually the wrong choice.
Speaker 1: But to go back to talk about the clever technology
Speaker 1: or the clever engineering that made this possible, where the
Speaker 1: R one, you know, learning module is able to use.
Speaker 4: Just a just a It's a very small change, but
Speaker 4: it's very very impactful.
Speaker 1: So if you think about like disruptive technologies, you have
Speaker 1: incumbent players who basically iterate they have built this fantastic
Speaker 1: black box, and they just iterate small and small pieces,
Speaker 1: Whereas these disruptive players come come around and they actually
Speaker 1: change the entire game. And that's what Deep Seek has done.
Speaker 1: They basically took the AI engine which is ever present
Speaker 1: in open ai, where the technology is ready for any
Speaker 1: question on any topic, whereas in the in the deep
Speaker 1: Seek infrastructure, it would basically take the input and only
Speaker 1: turn on the pieces of the infrastructure that were needed
Speaker 1: to answer.
Speaker 4: The question or to iterate.
Speaker 1: So it basically didn't have the entire system running, you know,
Speaker 1: all the time. And that will be readily adopted by
Speaker 1: all AI providers. For sure, Beta and for sure Open
Speaker 1: AI will adopt that clever engineering and they too will
Speaker 1: have it. And so the reason why I think that
Speaker 1: this is just the beginning is that now that infrastructure
Speaker 1: that was being built to handle an ever present AI
Speaker 1: infrastructure now could be used for other things. And I
Speaker 1: think that's why we're going to see this AI infrastructure
Speaker 1: actually blossom as a result of this disruption, not be
Speaker 1: torn apart.
Speaker 2: It is a critical week for tech earnings. This week.
Speaker 2: Four of the mag seven are reporting. That's Apple, Microsoft, Tesla,
Speaker 2: and Meta Platforms. What are your expectations here and what
Speaker 2: do these companies need to say about the future in
Speaker 2: order for investors to really kind of not lose heart.
Speaker 4: Well, two of the four of them had a very
Speaker 4: good day to day.
Speaker 1: I mean, Apple and Meta really bucked the trend, and
Speaker 1: it was largely because they're consumers of these more expensive,
Speaker 1: you know, chips, and I think if anything that lowers
Speaker 1: the infrastructure costs a cruise directly to players like Meta
Speaker 1: or Apple. Apple's unique story because there have been some
Speaker 1: concerns about the inability to produce or sell the iPhone.
Speaker 1: Maybe sales had declined, maybe people weren't upgrading at the
Speaker 1: same rate. But the story on Apple is less hardware
Speaker 1: these days and definitely more about.
Speaker 4: You know, the ancillary services.
Speaker 1: So I think Apple is going to do quite well
Speaker 1: and I think the stock definitely had a fantastic day
Speaker 1: to day on the prospects of them, you know, having
Speaker 1: higher margins because they're spending less on their data infrastructure
Speaker 1: meta the same thing. I think Microsoft kind of got
Speaker 1: caught up in the AI given its investment in the
Speaker 1: in the open AI platform. But I think that Microsoft
Speaker 1: is actually, of the three, the best position to continue
Speaker 1: to grow earnings year over year, and so I think
Speaker 1: three of the four are doing well. I'm not I
Speaker 1: don't follow Tesla that much, but I feel like Elon
Speaker 1: Musk may be in a better position to understand whether
Speaker 1: or not this deep seek technology is actually you know,
Speaker 1: whether or not the technology being deployed or the things
Speaker 1: that the company has said that they've been able to do,
Speaker 1: or actual reality because Tesla has one of the largest
Speaker 1: AI infrastructures powered by all the automobiles that Tesla makes,
Speaker 1: so their neural net has been around for some time
Speaker 1: and has been generating AI content for generation of software
Speaker 1: with the cars. So I think maybe we might learn
Speaker 1: a thing or two in the conference call that may
Speaker 1: be related to deep seek in some of this AI disruption.
Speaker 1: I think that will be the story for the for
Speaker 1: the Tesla conference call this.
Speaker 2: Year, Jamie. Before I let you go, We've also have
Speaker 2: a FED decision on Wednesday, Powell news conference right after
Speaker 2: we get the decision. Is it likely that we're going
Speaker 2: to get kind of a hawkish message right now?
Speaker 4: No, I think the FED is on hold.
Speaker 1: They may discuss, as they did in the press conference
Speaker 1: and December, the need to be cautious about lowering rates
Speaker 1: too fast. But it's going to be interesting to watch
Speaker 1: over the next couple of months because the President is
Speaker 1: going to put enormous pressure on the FED to do
Speaker 1: something about mortgage rates. That has been a particular concern
Speaker 1: to President Trump, and he is going to start beating
Speaker 1: the drum on that very loudly. So I have a
Speaker 1: feeling we'll start to see the FED start to talk
Speaker 1: about how they're going to deal with the balance sheet
Speaker 1: and how they could.
Speaker 4: Help consumers on the mortgage side.
Speaker 1: So I don't think this FED meeting will be much
Speaker 1: on the FED fund rate in terms of news. I mean,
Speaker 1: the FED fund futures basically are ninety nine percent that
Speaker 1: they hold. What is not built into the model is
Speaker 1: what they talk about on the ballot sheet, and there
Speaker 1: has been runoff at a fairly decent equipped over the
Speaker 1: last year and a half, and I think that may
Speaker 1: be ready to slow down. And if the FED would
Speaker 1: you slow its mortgage backed securities runoff, I think that
Speaker 1: might help mortgage rates some. So I think that's where
Speaker 1: you're going to see some of the action. And it
Speaker 1: would not surprise me at all if the President is out,
Speaker 1: you know, with comments in and around the FED meeting,
Speaker 1: that would you know, really encourage them to be more
Speaker 1: aggressive in helping mortgage rates to.
Speaker 2: Con Jamie will leave it there. Thank you so much
Speaker 2: for being with us. Jimmy Cox there, managing partner at
Speaker 2: Harris Financial Group, joining from Richmond, Virginia. Here on the
Speaker 2: Daybreak Asia Podcast. Thanks for listening to today's episode of
Speaker 2: the Bloomberg Daybreak Asia Edition podcast. Each weekday, we look
Speaker 2: at the story shaping markets, finance, and geopolitics in the
Speaker 2: Asia Pacific. You can find us on Apple, Spotify, the
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