This week, the Chinese committed a $4 trillion double-murder. Their new AI app DeepSeek wiped $2 trillion off the US stock market. And called another $2 trillion in AI related capital expenditure into question.
If AI can be made so much more efficient, do we really need all those computer chips from NVIDIA?
If not, do we really need all those data centres to keep them cool?
And do we even want the small modular reactors that’ll power them?
On Monday, the market said ‘No’ to all three questions. And so the companies supplying those goods plunged.
The rout broke a few records. And there’s even talk the AI bubble, which has single-handedly driven the US stock market higher for years now, has popped. It’s downhill from here.
Since manic Monday, the market has been a bit less sure about the early verdict. And so stocks have stabilised. Which is classic post-bubble behaviour, by the way. You get a range near the top, followed by a plunge.
But I don’t want to get on that high horse today. Instead, let’s ponder where you should be deploying your hard-earned savings in this volatile environment.
Now that all the knee jerk reactions are out of the way, investors need to think more like TV sleuths in “Who Dunnit?” murder mysteries…
Who benefits from DeepSeek’s AI and
the chaos it unleashed?
As any TV murder mystery watcher would know, this may well be the question which gives away the killer. Well, it tells you who to put your money on.
But actually figuring out who benefits is always easier said than done. On TV, it’s always obscured to make you watch till the end. Financial markets make it no less difficult.
And that’s my real message for you today. Financial markets have made it hard to figure out who does benefit from any given change. Especially technological ones, like AI suddenly becoming cheaper and more efficient.
All too often the gains don’t go where you think they would…
Derivatives can shuffle the returns to someone who has no skin in the game. It seems commodity trading firms profited from the 2022 energy crisis far more than any gas production company, for example.
Resource explorers are often acquired well before the full extent of their deposit is captured by their share price.
Biotech companies sell the rights to drugs that make billions for far less.
Founders list their precious unicorn companies after all the gains have been made. In fact, an IPO is practically an exit strategy instead of a capital raising venture these days.
Politicians both front run and then tax the living daylights out of companies trying to develop the economy.
Trump’s ‘Drill, baby, drill’ could crash the oil price instead of lifting oil company’s share prices.
To be right about investing these days, you need to make a successful prediction about what’ll happen and who the hell is going to actually capture the profits in the end.
That’ll be difficult when it comes to the turmoil DeepSeek has unleashed.
But let’s give it a go…
Devices that use AI capture the gains
of AI competition
You might’ve noticed that one stock escaped the AI meltdown on Monday. Apple (NASDAQ:AAPL) was up 2% while its peers plunged.
Detractors claimed this is because Apple’s AI programs are so bad that they had no value to begin with…
But there’s another explanation for why Apple would benefit from DeepSeek’s stock market torpedo…
Cheaper and more efficient AI makes the devices which use AI more useful. People will spend more time on them, use them for more applications and desire newer models more often.
If you think about it, what gives Apple devices their value is the amount of things you can get done on them. The internet made the devices dramatically more valuable. And DeepSeek’s way of running AI could do so too.
AI users are listed on the stock market too
Companies that are using AI to cut costs, grow revenue and expand into new markets should benefit from cheaper and more efficient AI too.
Biotech and companies that utilise a lot of skilled labour, for example.
Our resident geologist James Cooper is predicting that a confluence of technologies from the mining sector, combined with AI, is about to revalue a specific segment of the mining sector.
Seemingly depleted mines could suddenly soar in value. And there’s no complication to who benefits from that – their owners.
All you need is the man to tell you which mines have this potential. And who owns them.
Will Jevon’s Paradox save NVIDIA and
reinflate the AI bubble?
It’s also possible that the companies hit hardest in Monday’s meltdown could actually end up benefitting the most from DeepSeek’s AI revolution.
Supposedly, DeepSeek is dramatically more efficient than its American AI competitors. But that doesn’t necessarily mean we’ll need less computer chips, data centres and nuclear power stations to run it.
Jevon’s Paradox describes why. Here’s how to think about it…
If cars suddenly became more fuel-efficient tomorrow, would oil demand rise or fall?
Only a luddite would predict that fuel efficient cars will cut total oil demand. While they may use less oil per kilometre, fuel efficient cars also encourage people to drive more.
Jevon’s Paradox claims that efficiency gains actually increase demand so much that the net effect is to increase the amount of inputs you use. Oil demand goes up, not down, when cars become more fuel efficient.
In the case of AI, making it cheaper and more efficient to run will increase the demand for AI programs so much that we need more computer chips, more data centres and more energy, not less.
Given that DeepSeek used NVIDIA chips, this implies there could be a boom for the very companies that sold off on Monday. Investment in AI related infrastructure could likewise soar more, not less.
That implies Monday’s plunge could present a buying opportunity in AI and AI related stocks.
Regards,
 |
Nick Hubble,
Editor, Strategic Intelligence Australia
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