Macro Mondays: DeepSeek Panic or Opportunity?

Podcast: Macro Mondays
Host: Andreas Steno Larsen
Co-Host: Mikael Rosenwald
Date: January 28, 2025
Episode Theme: Assessing the macro and market impact of DeepSeek’s breakthrough in AI efficiency

Episode Overview

This week’s Macro Mondays focuses on the seismic market reaction to DeepSeek, a Chinese AI model that claims radically higher efficiency than existing Western models like OpenAI’s ChatGPT. Andreas Steno Larsen and Mikael Rosenwald analyze the implications for tech stocks (especially Nvidia), global macro trends, U.S.-China political dynamics, and market sentiment. The discussion balances real-time investment insights with deeper macro themes, skepticism around the DeepSeek news, and implications for future growth, geopolitics, and asset allocation.

1. The DeepSeek Shock: Why Markets Panicked (00:09–06:46)

Key Points:

• Unprecedented Tech Selloff: Nvidia, Meta, Alphabet, and other tech names drop sharply as DeepSeek’s breakthrough suggests lower demand for computational hardware.
• DeepSeek’s Pitch: Delivering “80–90% of what ChatGPT does at a much, much lower level of computational power.”
  Quote (Andreas, 02:21):

  “If you need fewer GPUs to more models, that could be a short-term issue for Nvidia … even one or two quarters with disappointments will probably be enough to alter the trend substantially.”

• Medium-Term Upside: Ironically, in the medium term, cheaper computation could boost overall AI and semiconductor demand.
• Structural Significance: Lower cost means lower entry barriers, more competitors, and—eventually—higher aggregate demand.

Memorable Moment:
Quote (Mikael, 04:39):

“Earlier than expected and possibly also electricity demand.”

2. Macro Reverberations: Inflation, Power, and Entry Barriers (04:44–09:48)

Key Points:

• Disrupted Energy Thesis: Utilities and nuclear stocks fell; narrative of huge and ever-rising AI power needs may be overstated.
• China as Catalyst: Lower AI compute costs are a classic case of Chinese competition pushing costs “to zero.”
• Sputnik Moment Analogy: DeepSeek may inspire massive U.S. government investment—just as Sputnik did for the space race.
  Quote (Mikael, 06:46):

  “…if this is viewed as a Sputnik moment, then this should provoke even larger investments into AI from within the U.S. …”

Notable Skepticism:

• Questionable Incentives: DeepSeek is a spin out from a Chinese hedge fund (HiFly), raising questions about market manipulation.
  Quote (Andreas, 07:56):

  “…let’s assume that HiFly, as the hedge fund behind this, ran some sort of negative or bearish position on Nvidia before throwing this news out there … I find it fishy.”

• Censorship & Data Angle: DeepSeek refuses to answer sensitive Chinese questions; possible “data grab” strategy at play.
  Quote (Mikael, 08:47):

  “There’s also a point to this being sort of a data grab … if you have the best model, that’s where people are going to go with all the data, with all their prompts…”

3. Market & Macro Mechanisms in Focus (09:48–13:34)

Key Points:

• Nvidia and Exponential Growth Pressure: Market only cares about near-term growth—one “bad” quarter can devastate a growth stock.

• Broader Ramifications: Could disrupt dollar strength via unwind of equity flows (Silicon Valley = strong dollar thesis).

  • Macro Play: Yen as a risk-off trade; dollar-yen as a “compelling story.”

• Tech Stock Valuations: Current multiples leave stocks vulnerable to any disruption in growth trajectory. Quote (Andreas, 12:27):

  “You simply need to deliver on the priced in growth also near term to justify the multiples. And that’s why we’ll have a rocky road ahead.”

• Strategic Asset Allocation: Promotes S&P equal-weight over Nasdaq for stability. Quote (Andreas, 12:27):

  “We’ve been banging the drum on buying equal weight S&P … It is incredibly difficult to time the price action in Nasdaq…”

4. Politics, Power, and the Trump Factor (13:34–17:43)

Key Points:

• Trump’s Tariff Tactics: Trump leverages tariffs for rapid wins (case study: Colombia standoff).
• AI in US-China Trade Relations: DeepSeek could upend US-China tech deal prospects, with potential for both governments to ramp up intervention.
• Power Consolidation in China: Raises the question whether DeepSeek’s rise in China is “too powerful,” akin to Beijing’s clampdowns on other tech giants.

Memorable Moment:
Quote (Andreas, 16:32):

“Could this be something that is too powerful for Xi’s taste as well … .You don’t really know that. Right. So lots, lots of questions right now.”

5. Macro Fundamentals: US Economy Signals (17:43–21:14)

Key Points:

• Withheld Taxes Indicator: Rising withheld taxes signal robust U.S. labor market and hiring. Quote (Andreas, 18:12):

  “The amount of taxes withheld on behalf of employees in the US is rising quite substantially … one of the strongest daily flavors of labor market activity.”

• Discretionary Spending: Flight data shows uptick in personal and business travel, indicating robust consumer health. Quote (Andreas, 20:18):

  “Flight data is the best gauge of discretionary consumer spending … if you struggle to pay your bills, you’re not booking a flight to Japan.”

• ESG/DEI Diminishing in U.S.: Societal focus shifting; U.S. companies and politicians are dialing back ESG and DEI priorities. Quote (Andreas, 21:16):

  “ESG is done, DEI is done. Because Trump has basically told both private and public companies to get over with it. Right. Stop it.”

6. Investment Takeaways and Closing Thoughts (22:33–25:06)

Key Points:

• AI Efficiency = Disinflationary: Consumers should see prices drop and more alternatives emerge.

  • Bullish long-term for GPU demand and AI’s progression toward “singularity.”
  • Short-term: Expect volatility and pressure on hardware growth stocks (e.g., Nvidia). Quote (Andreas, 22:33):

  “By the end of the day it is disinflationary because … more alternatives, less entry barriers, all of that, it’s disinflationary. It’s incredibly bullish for the demand for GPUs over time and will reach singularity before forecasted…”

• Crypto Market Impact: Current tech rout affecting crypto is mainly “sentiment-driven”; no direct link to DeepSeek. Quote (Andreas, 24:35):

  “It’s a sentiment thing. I don’t think there is, you know, to my knowledge there is no like crystal clear and direct links between the two stories…”

Notable Quotes & Timestamps

• “It delivers, say, 80, 90% of what ChatGPT does at a much, much lower level of computational power.”
  – Andreas (02:21)
• “If this is viewed as a Sputnik moment, then this should provoke even larger investments into AI from within the U.S. from the U.S Government as well.”
  – Mikael (06:46)
• “Let’s assume that HiFly … ran some sort of negative or bearish position on Nvidia before throwing this news out there. I find it fishy.”
  – Andreas (07:56)
• “You simply need to deliver on the priced in growth also near term to justify the multiples.”
  – Andreas (12:27)
• “Flight data is the best gauge of discretionary consumer spending.”
  – Andreas (20:18)
• “By the end of the day it is disinflationary … more alternatives, less entry barriers, all of that, it’s disinflationary.”
  – Andreas (22:33)
• “It’s a sentiment thing. … no like crystal clear and direct links between the two stories.”
  – Andreas (24:35)

Conclusion: Panic or Opportunity?

The DeepSeek saga is shaking up market narratives, but Henrik and Mikael argue it’s not just a threat; it could also be a long-term positive for growth, efficiency, and the AI ecosystem. Investors should expect short-term volatility—especially in hardware—but recognize the structural, disinflationary, and potentially bullish effects as barriers fall and innovation accelerates.

Key Advice:
Stay agile, focus on diversified or equal-weight allocations, and watch the intersection of politics, AI, and macro signals to guide decisions in this rapidly evolving landscape.

For deeper dives on technical AI ramifications, check out Steno Research’s Pro Macro content.