DeepSeek Is Here: 3 Stocks to Buy and 2 to Avoid
The most obvious buy is right under your nose...
The market got rocked yesterday by a new technology out of China.
And it may be leading to a major narrative shift, which means we need to make some portfolio changes today.
As I discussed in Monday's newsletter, a Chinese hedge fund released an AI model called DeepSeek which seemingly upended the prevailing artificial intelligence narrative by claiming to train an open-source large language model (LLM) in under two months with 200 employees for less than $5.6 million.
This would be a big deal as the costs associated with training this model are much lower than US peers, casting doubt on the necessity of the massive capital expenditures U.S. tech giants have been pouring into AI infrastructure.
And that has major implications for our current portfolio structure.
How We Got Here
DeepSeek and the rise of China's tech industry could represent the biggest threat to the US equity market bull run.
The company appears to have built an AI model that's as good as those released by Microsoft's (MSFT) OpenAI, Meta Platforms (META), and Alphabet (GOOGL). They've also seem to have done it without access to Nvidia (NVDA) chips - due to the US export ban on this technology - and at less than 1% of the cost.
One of the main drivers of the bull market we've seen over the last two years is the AI capex cycle. We've covered this many times, as it's a key reason we've invested in multiple AI winners. Nearly all of these positions are sitting on massive gains as AI winners - like those in the Magnificent 7 - have propelled markets higher.
Now it seems this capex spending—roughly $500 billion per year—may no longer be necessary. DeepSeek—which is open source—has proven that highly advanced LLMs can be built at a fraction of the cost. If more companies adopt this streamlined approach, it changes the calculus for how these high-flying stocks are priced.
This creates winners and losers in the technology market. Many of the market leaders of the last few years could see significant selling pressure similar to what we saw yesterday with Nvidia (NVDA)'s -17% crash:
I've made a living on recognizing shifts in market narratives. It's one reason the TikStocks Portfolio was up 36% in 2023 and 45% in 2024.
For that reason, we're going to do some portfolio reshuffling today.
Three Winners (And Two Losers) from DeepSeek's Release
Not every tech stock will be hurt by DeepSeek.
In fact, many of the Magnificent 7 tech stocks will actually benefit from this news. Some of my "winners" on the list below will likely surprise you. Because as I see it, there are three clear winners along with two losers.
First on my list of winners is