How DeepSeek Shocked Silicon Valley & Crashed Nvidia | Pivot

There's a new AI model on the scene that's smart, cheap, and made in China. It's called DeepSeek, and it's causing a panic in Silicon Valley, which is paying a lot of attention, and also on Wall Street. DeepSeek has reportedly outperformed models from OpenAI, Meta, and Anthropic in some tests, and it operates at a fraction of the cost of those models using fewer high-end chips. This is the ones that are made by NVIDIA and are hard to get, and the incumbents have been pricing them up heavily, uh, by grabbing all of them. The markets are not reacting well to DeepSeek. As of this recording, NVIDIA is down 16%, Oracle is down 10%, Microsoft Soft is down nearly 4%. Obviously, Meta is gonna be affected, all the others. So there's a lot to talk about, and I've seen different analysis of exactly what DeepSeek does. Yann LeCun from Meta was making an argument that it isn't as, what they're re- they're doing sort of a cheap and dirty version, and it's not nearly as... The stuff they're doing is much more advanced by the US companies. Uh, it's currently number one on Apple's, uh, free top apps chart. Uh, again, China invading i- in this country in a very different way. So thoughts on this situation? 'Cause you and I have talked about this quite a bit. Is this money ill-spent by US, uh, companies, and is it being relegated to the en- rich incumbents?

Well, first, you just have to temper the, or put some context to the... I mean, NVIDIA's down 15 or 16%. It's shed something like a half a trillion dollars, which basically, if you take out Tesla, it shed today the value of the entire global automobile industry sans Tesla. So this is pretty dramatic. But at the same time, that just takes it back to its valuation in October. And when you look at market dynamics, when these companies have experienced these type of run-ups, it is like a balloon inflating beyond its natural capacity, and the slightest, the slightest touch can pop it. And so in some ways, the market was probably looking for an excuse to take these stocks down a bit, and it got it. Because what's interesting is NVIDIA will have a pretty interesting argument on, on Capitol Hill saying, "When you refused to let us sell into these countries, they come up with workarounds." And in this case, this workaround might tank the (laughs) US economy. And everyone's excited about the fact that these models... OpenAI, supposedly, their models, their LLMs cost 100 million to train, and they're claiming this thing costs... and they've been public, it's open source, costs a little over five million to train. So whereas the majority of LLMs and, uh, AI companies have been taking sort of this brute force strategy where it's buy as many chips as possible, this is saying maybe you don't need as many chips. The thing I find equally interesting is the second-order effects here, and that is Constellation Energy and some of these nuclear stocks have skyrocketed because the choke point was supposing it'll be energy. But now with this, this model, which appears to have chips speaking to each other in a more efficient, less energy consumptive way, nuclear stocks are crashing. Y- uh, electric, Constellation Energy, all these things that have had incredible run-ups are saying, "Wait, the entire supply chain or the assumptions we made about the supply chain in terms of the, the kind of the brute force of chips that we're gonna need, the amount of energy," it's all now coming into a little bit of question. But to be clear, the correction here is like, it's taken them back three months. And all of the stocks that have crashed, quote-unquote crashed, are, are only up, you know, 70% for the year now, not 98. And a lot of, uh, analysts, the smart analysts I've read have said, "Like every community or every sector, it's gonna bifurcate into the cheap layer and then the high-end layer, which will still go hard at massive computing and massive energy and do more sophisticated things." And this will be sort of... You know, everything eventually goes Walmart, Tiffany, right? And they're saying this might be the Walmart, and it's the Chinese, and they'll come up with cheaper models. But I, it's fascinating to see that basically this notion, this, this kind of conventional wisdom that you would need massive GPUs and massive energy may not be, um, kind of the written in law-