DeepSeek AI and the Impact on the Stock Market

The Recent Stock Market Sell-Off: What’s Happening?

Hi, it’s Dre Griggs with Obsidian Wisdom. If you’ve been paying attention to the stock market lately, you’ve likely noticed a significant sell-off. The market has been fluctuating wildly, and many are asking the same question: What does this mean for my retirement plan?

Adding fuel to the fire, there’s a new artificial intelligence company out of China called DeepSeek AI. The news of its emergence has sent shockwaves through the market, particularly impacting the Magnificent Seven—the seven leading companies best positioned to capitalize on AI technology.

But what does this mean for you, your investments, and the stock market’s future? Let’s break it down.

The Rise of AI: Disruption and Market Reaction

AI is everywhere. It’s writing papers, developing workout plans, assisting businesses, and even authoring books. As AI becomes more integrated into our daily lives, the stock market is trying to predict what this future looks like and who will dominate the industry.

Think of the stock market like the odds-makers in Vegas. If you’ve ever watched sports betting, you know that Vegas can set a line so precise that it comes down to the final seconds of the game. The stock market attempts a similar predictive approach, but because it’s accessible to everyone, it lacks the precision of Vegas. The result? Increased volatility and speculation.

Why Are Stocks Selling Off?

For the past few years, the assumption was that whoever spent the most on AI and had the most advanced chips would dominate the market. Companies like NVIDIA, Microsoft, Apple, and Meta were seen as unstoppable forces leading the AI revolution. That’s why we saw stocks like NVIDIA surge from around $100 to nearly $1,000 within two years.

Then DeepSeek entered the scene and flipped this assumption on its head.

DeepSeek’s Disruption: A Game-Changer in AI

DeepSeek AI demonstrated that you don’t need the most expensive chips or billions of dollars to build competitive AI models. Instead, they spent a fraction of what U.S. companies invested and still developed an AI that rivals ChatGPT.

This revelation sent shockwaves through the market. If DeepSeek could achieve this with fewer resources, it means:

• The AI moat protecting U.S. companies isn’t as deep as investors assumed.
• The barrier to entry in AI is much lower than expected.
• Future competitors—whether in China or the U.S.—could disrupt the market further.

The U.S. Government’s AI Strategy

Recognizing AI’s significance, the U.S. government has been actively protecting its AI dominance:

• The Biden administration restricted NVIDIA from selling high-end AI chips to China.
• The Trump administration proposed a $500 billion AI investment to ensure the U.S. remains at the forefront of AI development.

Despite these measures, DeepSeek’s success raises a critical question: If China can develop a competitive AI model without access to U.S. chips, what stops smaller, lesser-known companies from doing the same?

The Stock Market’s Reaction: A Rethink on Valuations

Investors have been betting on the Magnificent Seven based on speculation—not actual earnings. When DeepSeek demonstrated that AI’s barriers are lower than expected, panic selling ensued.

In investing, speculation is different from investing based on fundamentals. Many investors bought AI stocks assuming massive future earnings, but with new competition emerging, those assumptions are now being re-evaluated. This is why we’re seeing a sell-off.

Lessons from Market Trends: The First-Mover Advantage Myth

Historically, companies that are first in an industry tend to dominate. For example:

• Coca-Cola vs. Pepsi: Coca-Cola’s first-mover advantage makes it nearly impossible for Pepsi to catch up.
• Google vs. Bing: Google was first in search, and despite Microsoft’s efforts, Bing remains a distant second.
• Tesla vs. Other EV Makers: Tesla’s brand dominance has kept competitors at bay.

Investors assumed AI would follow the same pattern. However, DeepSeek’s rise challenges this notion. What if AI isn’t about who’s first, but about who adapts the fastest and at the lowest cost?

The Bigger Picture: Is This a Market Reset?

The stock market is now reconsidering its assumptions about AI dominance. If DeepSeek can replicate AI success at a lower cost, then the projected revenue dominance of NVIDIA, Microsoft, and other AI giants may not be as secure as investors believed.

This realization triggered the recent stock sell-off as investors scrambled to rebalance their portfolios.

How Should You Approach This Market Volatility?

The key takeaway here is simple: investing based on fundamentals beats speculation every time.

Instead of chasing the next big thing, focus on:

• Company earnings over time (5–10 years of consistent profitability).
• Margin of safety (Buying stocks at a reasonable valuation, even if future earnings are lower than expected).
• Diversification (Don’t put all your money in AI stocks—spread it across industries).

Expect More Volatility in 2025 and 2026

Looking ahead, we’re likely in for a volatile few years. Between government regulations, AI advancements, and economic shifts, the market will be filled with uncertainty.

The Federal Reserve recently paused interest rate cuts, adding another layer of unpredictability. Economic policies are shifting, international trade tensions remain, and new technological advancements could change the game at any moment.

Final Thoughts: Investing vs. Speculating

If you’re investing for the long term, this volatility shouldn’t shake you. Instead of betting on what might happen, focus on what companies have already proven they can do.

Remember: The stock market rewards patience and strategy, not gambling and speculation.

Let’s Discuss! Join the Conversation

This topic has sparked a lot of discussions among my clients, so I wanted to share my thoughts. If you have questions, drop them in the comments. I’ll be happy to address them.

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Resources:

USA Today: Fed pauses interest rate cuts as inflation, Trump's plans create uncertainty

Reuters: DeepSeek sparks AI stock selloff; Nvidia posts record market-cap loss