How DeepSeek AI is Disrupting US Tech and Shaking Nvidia’s Dominance
The rise of DeepSeek, a Chinese AI startup, is sending shockwaves through Wall Street. With its promise of cheaper, more energy-efficient AI solutions, DeepSeek could disrupt the U.S. stock market and challenge tech giants like Nvidia, Microsoft, and Alphabet. Don Townswick, director of equity strategies at Conning Asset Management, warns that the full impact of DeepSeek’s innovations hasn’t yet been reflected in U.S. equities.
In this article, we’ll explore how DeepSeek’s advancements could reshape the AI landscape, impact major tech stocks, and influence investor strategies in 2025.
DeepSeek’s AI Breakthrough: A Game-Changer for Wall Street
DeepSeek made headlines earlier this month with the launch of its groundbreaking chatbot. The technology promises to deliver cost-effective and energy-efficient AI solutions, potentially disrupting the dominance of U.S. tech giants.
Don Townswick, who oversees $170 billion in assets at Conning, believes DeepSeek’s success could have two possible outcomes:
- If DeepSeek’s technology falls short, the “Magnificent Seven” stocks—Apple, Microsoft, Alphabet, Amazon, Nvidia, Tesla, and Meta—could benefit.
- If DeepSeek delivers on its promises, smaller companies could adopt AI more easily, leveling the playing field and boosting productivity across industries.
The AI Spending Race: Tech Giants Double Down
DeepSeek’s emergence has intensified the AI spending race among U.S. tech companies. Here’s how major players are responding:
- Nvidia: Suffered a historic $600 billion one-day stock wipeout after DeepSeek’s chatbot launch.
- Meta: Plans to spend “hundreds of billions of dollars” on AI infrastructure in the coming years.
- Alphabet: Forecasted $75 billion in capital expenditures for 2025, exceeding Wall Street expectations.
- Microsoft: Reported a 95% increase in cloud and AI spending, reaching $22.6 billion in its fiscal second quarter.
Robert Pavlik, senior portfolio manager at Dakota Wealth Management, questioned the sustainability of this spending spree: “When is enough, enough?”
Investor Concerns: Trade Wars and Market Volatility
While AI stocks face scrutiny, other market sectors are gaining attention. Garrett Melson, portfolio strategist at Natixis Investment Managers, noted a shift toward defensive and rate-sensitive investments.
However, trade tensions are adding to investor worries. Recent U.S. tariffs on China and threats of tariffs on Canada and Mexico have impacted stocks like Tesla, Apple, and Amazon.
The “Magnificent Seven”: Slowing Growth Ahead?
The “Magnificent Seven” tech stocks have been a driving force in the market, but their growth rates are slowing. Townswick pointed out that while these companies achieved a 61% yearly earnings growth rate in Q4 2023, expectations for 2025 are closer to 16%-18%.
This slowdown could make it harder to justify their high valuations, especially as the broader S&P 500 is expected to grow at 12%-13%.
Why Investors Should Stay Cautious
Despite recent market resilience, Townswick advises caution. DeepSeek’s potential to disrupt the AI landscape, combined with trade uncertainties, creates a volatile environment for investors.
Melson, however, remains optimistic: “The most surprising part of the past couple of weeks is the fact that stocks were still close to their all-time highs. There is still a pretty resilient market here.”
Key Takeaways for Investors
- Monitor DeepSeek’s progress: Its success could reshape the AI industry and impact tech stocks.
- Diversify your portfolio: Consider defensive and rate-sensitive investments amid market volatility.
- Stay informed: Keep an eye on trade developments and AI spending trends.
