DeepSeek, a Chinese startup, has thrown a hand grenade into the U.S. stock market and especially the tech heavy NASDAQ. The startup has launched an AI solution which appears to be a significant threat to both Nvidia and OPEN AI. See “China’s DeepSeek Tops iPhone Downloads and Spurs AI Selloff”, Bloomberg 01/26/25. Also see Fortune Magazine article about prediction by esteemed VC, “Marc Andreessen warns Chinese ChatGPT rival DeepSeek is ‘AI’s Sputnik moment”
DeepSeek is an open-source software which is exactly opposite to OPENAI’s closed source software. For this reason and also because the DeepSeek has other significant advantages it has the potential to become the dominant AI software instead of ChatGPT.
According to Search Labs: “Open source software means the source code is publicly available for anyone to view, modify, and distribute, while closed source software keeps the source code private, only accessible to the developers, limiting user customization and transparency; essentially, open source allows for community collaboration while closed source offers more control over the software by the developer.”
Regardless of whether or not DeepSeek becomes a viable competitor to OPENAI and Nvidia its emergence is the catalyst for a correction that will lead to a double-digit market decline. The decline is being led by tech stocks. See CNBC “Nvidia hits new low for session, dropping 17% on threat from China’s DeepSeek AI model”.
The U.S. indices are extremely vulnerable because the indices have been driven to at or near all-time highs by the big tech companies which are dependent on AI for growth. The chart below depicts the NASDAQ 100’s forward PE multiples which are well above their 10-year average.
Additionally, in the “Markowski on the Markets” January 18, 2025 weekly session, I explained the rationale for why the biggest tech stocks would be a reason for the S&P 500 and other major market indices to decline in 2025. The video below is a clip from the session and is highly recommended.
Tech Concentration is Double Edge Sword for S&P 500
Since the indices are long overdue for an extended decline and multi-year bear market my recommendation is for all investors to deploy my defensive growth strategy. Under the strategy, which includes a 50% allocation to U.S. Treasury bonds, $100,000 is projected to increase to $1,745,000. For about the strategy view video below:
Small Companies can Grow in any Economic Environment
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Michael Markowski, Director of Research for SaveChangeWorld.com. Developer of “Defensive Growth Strategy”. Entered markets with Merrill Lynch in 1977. Named “Top 50 Investor” by Fortune Magazine. Formerly, underwriter of venture stage IPOs, including one acquired by United Health Care for 1700% gain. Since 2002 has conducted empirical research to develop algorithms which predict the negative and positive extremes for the market and stocks. Has verifiable track records for predicting (1) bankruptcies of blue chips, (2) market crashes and (3) stocks multiplying by 10X. In a 2007 Equities Magazine article predicted the epic collapses for Lehman, Bear Stearns and Merrill Lynch. Most recent algorithm developed from research of UBER and AirBnB has enabled identification of startups having 100X upside potential within 7 to 10 years.