Futures sink deep, tech wreck on DeepSeek, AT&T pops, SoFi drops
I’m late. Today is a mess in the markets. Let’s get into it.
Deep trouble: Futures are indicating a very rough start to the trading week on the back of a breakthrough in AI out of China called DeepSeek. NASDAQ futures are down 3% right now with major tech stocks plunging in the pre-market. DeepSeek is a private Chinese tech company that launched a free, open source large language model back in December. This weekend it catapulted to the #1 downloaded app in the US on Apple and has the US tech world quaking in its boots. The main concern is that apparently it was developed in 2 months, cost under $6 million to make and runs on old Nvidia chips. If you can do that, why does OpenAI need $18 billion to develop ChatGPT? Why is America pouring $500 billion into AI? And why does Nvidia’s next generation chips have to cost between $30,000 and $3 million if you can build something better on something worse? These are the kinds of questions that are sending stocks sharply lower.
Nvidia: -11%
ASML: -8%
ARM: -8%
Marvell: -12%
Microsoft: -4%
The wreck in tech stocks is poised to bring down the whole market. I’m reminded of something John Zechner of J. Zechner Associates said on the podcast last week. “For every $100 someone puts into the S&P 500, $30 of that is going into these Magnificent 7 stocks.” In other words, just seven stocks have a massive outsized impact on the entire markets because of how large they have become. When they go down, it takes down the whole market. Indeed S&P 500 futures are down 2% right now. In Canada, shares of Celestica are down nearly 8% in the pre-market (reports Wednesday after the bell). This is a can’t miss week in the markets. Four Magnificent 7 companies will be reporting results: Tesla, Microsoft, Meta and Apple. No doubt they will all be asked about what DeepSeek means for the AI landscape. And if that wasn’t enough, we also get the Bank of Canada and the Federal Reserve rate decision on Wednesday. The Fed is expected to keep rates unchanged while the Bank of Canada is expected to cut by another 25 basis points.
Infrastructure plays: AI infrastructure plays are also down sharply:
Constellation Energy: -15%
Vertiv: -17%
Vistra: -16%
GE Vernova: -16%
The price of natural gas is down 6% right now and shares of uranium producers like Cameco are down 8% in the premarket. If you can run a better AI model on less computing power what does this mean for energy stocks that have run up on anticipation that AI data centres will create huge demand? I’m not smart enough to know the answer, but don’t miss In the Money with Amber Kanwar tomorrow. I interview Ivana Delevska of Spear Invest who invests in the disruptive tech sector. She’ll give her perspective on whether this a black swan or a golden buying opportunity.
Heard on the street: With the sell-off in progress some analysts are already out saying this is a buying opportunity in tech. “A handful of times over the last few years there have been major tech sell-offs that were golden buying opportunities….today is another one of them in our view,” wrote Dan Ives of Wedbush. He’s got a healthy dose of skepticism about whether DeepSeek was actually developed for $6 million. More important, he says US companies won’t be buying. “No US Global 2000 is going to use a Chinese start-up DeepSeek to launch their AI infrastructure and use case,” he wrote in a note to clients, “At the end of the day there is only one chip company in the world launching autonomous, robotics, and broader AI use cases and that is Nvidia.” Raymond James’ Srini Pajjuri is out with a note this morning acknowledging that this development is a negative for US semiconductors if DeepSeek’s innovations are broadly adopted, but believes AI semiconductor demand will outpace supply throughn 2025. Pajjuri is reiterating strong buy on Nvidia and ASML.
Ring ring: Shares of AT&T are up 3% in the pre-market after quarterly results came in better than expected. While the telecom’s profit outlook for 2025 was disappointing, investors are focusing on the stronger than expected subscriber growth. AT&T added 482,000 new wireless subscribers last quarter, better than the 441,000 that was anticipated. Analysts are generally positive on the results. “Overall, results point to continued execution against a consistent and attractive plan,” wrote Kutgun Maral of Evercore.
Soft: Shares of SoFi are falling nearly 10% in the pre-market despite stronger than expected quarterly results and an upbeat outlook on sales. The rub is that the profit outlook was well below expectations. The online lender has been in the midst of a turnaround and recently closed at the highest level since November 2021. The results under the hood are pretty stellar. Home loan originations were up 87% and student loan originations were up 71%, with both performing the best since 2021. So it could be a bit of a sell-the-news event on a conservative profit outlook. The stock trades at more than 60x forward earnings and that can make for easy pickings on a miss relative to expectations.
