Weekly Buzz: 🐋 The DeepSeek effect (and the market’s reaction)

A new development in artificial intelligence has sent shockwaves through global markets – and it's not because of any of the tech giants, like you might have expected. DeepSeek, a Chinese startup, has accomplished something remarkable: creating an AI model that rivals those of industry leaders, but at a fraction of the cost.

What’s DeepSeek doing differently?

The company claims to have built its latest AI model with just US$6 million – loose change by Silicon Valley standards, where tech giants spend hundreds of millions, if not billions, on similar technology. And because it’s simply a good model, it's now become hugely popular, hitting the top of app charts.

This throws a wrench in some investor assumptions about AI development. The prevailing wisdom was that building advanced AI models was like constructing a skyscraper: you needed massive resources and equally massive budgets. Microsoft just announced an US$80 billion investment, while OpenAI and SoftBank – along with Trump – have pledged US$500 billion over the next four years.

Investor reaction to DeepSeek was swift. Nvidia, the world's AI darling, saw its value drop by about US$590 billion last Monday – the largest single-day loss for any company in history. Its price did recover partially the next day, however. Still, the message was clear: if AI development could be done with fewer chips and less computing power, those huge infrastructure spending plans might need a rethink.

What’s the takeaway here?

The market's reaction reinforces an age-old wisdom: innovation can emerge from anywhere. Just as no one company had a monopoly in the dot-com era or the mobile revolution, the same seems to be true for AI. The story of DeepSeek isn't just about disruption – it's about the pace of innovation and the opportunities that it creates for long-term investors.

It’s why a diversified approach makes sense. Rather than trying to predict the next breakthrough, consider how you can position your portfolio to benefit from technological advancement, whenever and wherever it occurs. For a portfolio that invests in companies across the AI value chain, check out our newly refreshed Technology Enablers portfolio.

📰 In Other News: Europe cuts, Japan hikes

In a week of major central bank decisions, we've seen two starkly different approaches to monetary policy. In its first meeting of 2025, the European Central Bank (ECB) trimmed its rates for the fifth time in a row – by another 0.25% to 2.75%. Think of it as a gradual descent from tight monetary policy as inflation cools. The Governing Council members of the ECB see interest rates eventually settling between 1.75% and 2.25%, suggesting more small cuts are on the horizon.

Meanwhile, Japan is marching to the beat of its own drum. The BoJ raised rates by 0.25% to 0.5% – the highest since 2008 – in response to persistent inflation. In contrast to Europe, the Japanese economy is running a little hot: inflation jumped to 3.6% in December, and business activity continues to expand, as shown by a composite PMI reading of 51.1. According to a former BoJ board member, we could see interest rates in Japan triple to 1.5% over the next two years.

This article was written in collaboration with Finimize.

🎓 Simply Finance: Purchasing Managers' Index (PMI)

A Purchasing Managers' Index (PMI) is a survey of business leaders about their companies' activities – everything from new orders and production levels to hiring patterns. When a PMI reads above 50, it signals economic expansion, while anything below 50 means business activity is cooling off. It’s a closely watched indicator, often signalling shifts in the economic cycle before official GDP numbers.

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