DeepSeek’s Development Delivers More Questions Than Answers

Has the tech-sector bubble burst? Are the projections for AI infrastructure and costs over-estimated? (and will large AI infrastructure plans need to be scaled back now in pursuit of more efficient plans?) Are the so-called ‘’Magnificent 7 overvalued? Investors may be questioning just how magnificent they really are in light of DeepSeek’s achievements using lower-grade chips and in less time. And in the bigger picture – has China usurped the US as the AI leader? The answer to these questions will become clearer once the dust starts to settle after this DeepSeek revelation to the market (with skepticism raised by some about the actual cost and size of the infrastructure used as well as the effectiveness of US sanctions on chip technology to China).

One could make the case that if DeepSeek managed to deliver a comparable or even superior product to Silicon Valley using inferior Nvidia chip technology, this demonstrates the potential upside for forthcoming AI programs should Nvidia’s top-notch products be better utilized. And, given the open-source nature of DeepSeek, tech companies in the US could use this as a ‘learning moment’ to better their own efficiency in AI projects moving forward. Time will tell if the rout of the US tech sector and Nvidia in particular was overdone or justified. But at the moment it seems that DeepSeek’s tech revelation has delivered more questions than answers, with the upshot being that investors are suddenly skittish on the big tech stocks.

The risk-off theme to start the week saw bonds in demand, which sent yields lower. Falling treasury yields hurt the USD with the currency losing ground to safe haven favorites the yen and Swiss franc. Tuesday morning has seen a moderate bounce in the Dollar Index on oversold conditions. This bounce may extend for the DXY back to the 108 level if bond demand recedes (therefore sending treasury yields higher) and risk aversion decreases. Though Trumps’s recent softer tone on tariffs is still hampering the USD.

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Gold seemed to temporarily forget about its safe haven status with the precious metal following yields and the USD lower. Traders were in a selling frame of mind to start the week, and gold was one of the casualties of this. Today (Tuesday), gold has inched higher with the spot price sitting at $2742, with resistance awaiting at $2764 and further out at $2789. Support lies at $2722 and $2706. While gold was caught up in the selling pressures of the broader market to start the week, I expect that it will likely revert to its status as a safe haven asset. The FOMC meeting this week and the attitude to inflation and interest rates by the Fed will be key for the direction of gold and the USD. The US central bank is expected to keep interest rates steady, but the outlook and remarks by Chairman Powell is what the market will react to. If the Fed shows no inclination for a rate cut in the near-term this may help the USD and slow gold’s progress.

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Aside from the FOMC meeting, other key events for the week include the ECB (with the European central bank expected to cut rates by 25bp) and CPI readings in Australia (due Wednesday) and Japan (due Friday). Meanwhile, Q4 earnings season in the US continues with tech giants Meta, Microsoft, Tesla, and Apple all due to report. We can expect increased scrutiny of spending on AI infrastructure in response to DeepSeek’s latest developments which have rocked the AI field.

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