Today will go down as the day the AI-focused hype cycle in markets ground to a halt.
AI-adjacent stocks have been on a hell of a ride, centred on chipmaker Nvidia, which has catapulted from relative obscurity to become a $3.5tn giant. The storied Magnificent Seven in the US — comprising Nvidia and a clutch of so-called hyperscalers such as Amazon, Meta and Alphabet — account for a third of the entire S&P 500.
Investors have largely bought into the idea and promise of AI. The revenues are there, for sure, and the capex is real. The US has unquestionably dominated. But the mood had already shifted, with investors flipping to “show me” mode. They want to see real, practical and productivity-enhancing benefits from this technology, not just the potential. Right at that point, along comes DeepSeek.
Will it really blow apart the case for investing in the Mag Seven? Not completely, and not immediately. But it does suggest very strongly that alternatives can and will spring up at a much lower cost. In stock markets, this provides the first big challenge to Big Tech in particular, and to US exceptionalism more broadly, in several years.