Trump: China's low-cost AI should challenge American firms
DeepSeek unveils hidden US market risk
Clearly, it’s hard to know where the DeepSeek panic will lead. — Bloomberg
THE S&P 500 Index plummeted as much as 2.3% on Monday over DeepSeek, a Chinese artificial intelligence (AI) startup that developed a model competitive with the US’s very best – and, supposedly, on the cheap.
Venture capitalist Marc Andreessen called it a “Sputnik moment,” a reference to the Russian satellite that set off the 1957-1960s Space Race.
Chip companies plummeted and so did many of the communications giants developing AI tools of their own.
But the ostensible pandemonium in the world’s biggest stock market was not as widespread as you might imagine, and it seemed to abate as the trading day wore on.
With DeepSeek hype still largely indistinguishable from reality, the main lasting lesson may be that diversification still matters.
Consider the following factoids about Monday, the worst intraday selloff of 2025:
> At the time of writing, 328 stocks on the S&P 500 were up.
> The median stock was up 0.7% and the average was down just 0.2%.
> Among sectors, healthcare, consumer staples, real estate and financials were all positive on the day.
> Information technology (IT) accounted for 95% of the index move.
> Nvidia Corp, which is behind cutting edge AI chips that are also eye-poppingly expensive, accounted for about two thirds of the decline on its own.
In other words, investors would have been in a privileged position on Monday morning if they had simply rebalanced their equity investments this year into equal-weight portfolios of large-cap stocks, instead of leaning into the increasingly AI-concentrated market-capitalisation- weighted S&P 500 Index or Nasdaq 100.
I’ll admit it: betting against the cap-weighted index has been a losing proposition for the past decade and a half, but concentration risk has become a more acute problem for investors in the past two years.
S&P 500 Index investors’ exposure to IT and communication services companies is at its highest since the dot-com bubble.
Overweight tech
Tech and communications services add up to 41% of the S&P 500. And just seven companies account for about a third of the entire index by weighting.
Nvidia alone had a greater weighting than five of the 11 sectors represented in the index.
That concentration is a big reason why a Goldman Sachs Group Inc report in October suggested that the S&P 500 would deliver an annualised total return of just 3% over the next decade (or only about 1% per year if you adjust for inflation).
“Our historical analyses show that it is extremely difficult for any firm to maintain high levels of sales growth and profit margins over sustained periods of time,” Goldman wrote at the time.
It’s always technically possible that today’s index giants continue to outperform, but history is working against us.
Similarly, the research suggests that market concentration is associated with greater volatility going forward.
If the market truly underwhelms over the next decade, it may well be in the form of a crash followed by a long, gruelling recovery – rather than 10 years of nearly flat real returns.
Fortunately, elementary mitigation strategies are easy to implement, and you don’t even need options (in fact, tail hedges are very inefficient in slow-moving bear markets like the dot-com bust).
The Goldman report suggested that the equal-weighted version of the S&P 500 could outperform the S&P 500 by 200-800 basis points in the decade.
Additionally, the juicy income benefits of bond ownership may give new life to 60/40-type mixed asset class portfolios.
And investors may finally take the opportunity to add some exposure to unloved international stocks, as well as small- and mid-capitalisation US stocks that can still benefit from a strong macroeconomic backdrop.
Clearly, it’s hard to know where the DeepSeek panic will lead.
Companies representing about 38% of the S&P 500 by weighting are expected to report earnings this week, and those announcements should provide some insight into how US executives are processing the developments and help us sort hype from reality.
Even in a scenario in which the narrative proves well-founded, it’s entirely possible that a cheaper path ahead for AI turns into a net positive for many publicly traded US companies, including companies developing AI-related software, and end users.
But first, Monday’s market action may shake index tracking investors out of their complacency.
For all the strengths of the US economy and stock market, the index’s composition is tilted strongly in favour of the spectacular AI story and the premise that we’ve correctly identified the market winners.
Odds are that we have the narrative at least a little bit wrong, and investors should expect to pay for their lack of true diversification with ongoing volatility and perhaps even subpar total returns. — Bloomberg
- by Jonathan Levin, a columnist focused on US markets and economics. The views expressed here are the writer’s own.
Chinese AI app DeepSeek tops Apple App Store’s free downloads in China and US, outpacing ChatGPT
deepseek
Chinese artificial intelligence (AI) app DeepSeek topped the Apple App Store's free downloads in both China and the US on Monday, outpacing ChatGPT in free downloads in the US.
Following the momentum, DeepSeek-related stocks rallied strong on Monday's opening with multiple stocks opening more than 10 percent higher.
Chinese AI startup DeepSeek in January released the latest open-source model DeepSeek-R1, which has achieved an important technological breakthrough - using pure deep learning methods to allow AI to spontaneously emerge with reasoning capabilities, the Xinhua News Agency reported.
In tasks such as mathematics, coding and natural language reasoning, the performance of this model is comparable to the leading models from heavyweights like OpenAI, according to DeepSeek.
The app soon sparked global attention, which has Silicon Valley marveling at how its programmers nearly matched American rivals despite using relevantly less-powerful chips, according to a report from the Wall Street Journal (WSJ) on Sunday.
For instance, "Deepseek R1 is one of the most amazing and impressive breakthroughs I've ever seen," said Marc Andreessen, the Silicon Valley venture capitalist who has been advising President Trump, in an X post on Friday.
Barrett Woodside, co-founder of the San Francisco AI hardware company Positron, said he and his colleagues have been abuzz about DeepSeek. "It's very cool," said Woodside, pointing to DeepSeek's open-source models in which the software code behind the AI model is made available free, per the WSJ report.
DeepSeek and its effect on M’sia
Analysts are largely of the view that US president Donald Trump is unlikely to alter the directive set by former president Joe Biden regarding the limitations on exporting AI chips from the United States.
PETALING JAYA: The domestic technology sector could be in for more uncertainties as Chinese startup DeepSeek launches a free, open-source artificial intelligence (AI) model that experts say rivals OpenAI’s ChatGPT.
This comes amid heightened tensions in the AI trade, which saw a sell-off in the technology sector earlier this month after the Biden administration announced new restrictions on the export of advanced semiconductors and AI technology, citing national security concerns.
Under the new rules, Malaysia was placed in a category allowed to procure only a fixed and limited amount of such advanced technology, potentially constraining the development of its AI capabilities.
Subsequently, the local construction sector was downgraded by at least two research houses, on the basis that many of these contractors had factored in work related to the construction of data centres in Malaysia.
Analysts are largely of the view that US president Donald Trump, who aims to establish the United States as the global leader in AI, is unlikely to alter the directive set by former president Joe Biden regarding the limitations on exporting AI chips from the United States.
However, Tradeview Capital Sdn Bhd portfolio manager Ng Tzyy Loon said DeepSeek’s AI chatbot may throw the effectiveness of the proposed AI export control order into question.
“The US’s strategy to limit the development of AI in other countries by controlling their access to top-tier computing power and technology may not achieve its intended goals, as proven by the creation of DeepSeek,” he told StarBiz.
Last December, DeepSeek launched its DeepSeek-V3 model, which was reportedly developed at a much lower cost of US$5.6mil. In contrast, the training of OpenAI’s ChatGPT-4 model had reportedly required an investment of around US$100mil.
On Jan 20, the startup released another AI model, the DeepSeek-R1, which is said to rival OpenAI’s o1 (designed to complement ChatGPT) reasoning capabilities, sparking concerns over US tech dominance and prompting a reevaluation of technology companies’ lofty valuations.
The Bursa Technology Index has slipped by 0.88% since Monday. Yesterday, local technology or data centre-related stocks like YTL Power International Bhd
, Inari Amertron Bhd, Nationgate Holdings Bhd and PIE Industrial Bhd fell by as much as 3%, 2%, 5% and 2%, respectively.
Major Wall Street indexes also tanked as the market digested the release of DeepSeek-R1.
The S&P 500 tumbled 1.5% while the tech-heavy Nasdaq composite sank 3.1%.
The blue-chip Dow Jones Industrial Average, which is less dependent on tech stocks, gained more than 0.6% with investors flocking to more defensive sectors.
Major tech counters like Nvidia Corp and ASML Holding NV slid as much as 17% and 6%, respectively.
Ng noted one notable aspect of DeepSeek’s AI models is their use of Nvidia’s H800 chips for training, which are not top-of-the-line chips like Nvidia’s H-100 of which the Biden administration’s latest export controls had planned to target.
“This shows that restricting access to top-tier chips may not prevent advancements in AI development, as companies can innovate around these limitations,” he said.
While this may be the case, it is important to note that the H-800 chip itself has been included in the US export restriction list since 2023.
Tradeview’s Ng also pointed out the cost and complexity of monitoring and tracking AI chip usage make enforcement highly challenging for the United States.
“While the US government can track where the AI chips are distributed, enforcing such restrictions is challenging, given the number of countries, such as Singapore, that are eager to advance their AI capabilities.
“Countries may also find ways to smuggle in AI chips like what China does, making it difficult to monitor effectively,” he said.
Ng is of the view that Trump may employ a more pragmatic approach in going about Biden’s proposed AI export control order.
“I think he may repeal the order or at the very least, adjust the rules to make the restrictions less stringent,” he said.
In a report yesterday, Kenanga Research said all eyes are now on Big Tech’s response to the AI capital expenditure ahead, with concerns surrounding the risks of a smaller addressable market for high-end chips.
“On the heels of big spending announcements of a whopping US$500bil under the joint-venture entity Stargate, the pledge to spend multiple billions by Big Tech will likely come under more scrutiny, as we expect them to carefully evaluate strategies given this AI development.
“Demand for state-of-the-art chips will still be intact in our view for firms that are pushing the envelope in developing frontier large language models, or put simply, the most advanced and cutting-edge models to understand and generate text,” the research house said.
As for the data centre play in Malaysia, Ng said it remains intact in the near term looking at the committed data centres here. However, there may be delays or uncertainties around new data centre projects.
“This is because the graphics processing unit (GPUs) already committed are well below the levels planned by major players like Nvidia and Amazon globally.
“For now, the impact should be manageable in the near to medium term, but beyond three years, further expansion could become challenging if the restrictive AI executive order really comes through,” he said.
BMI telecoms and technology industry analyst Niccolo Lombatti said it is important to note that not all Malaysian data centres rely on US-supplied chips.
“The decision of what chips to use is largely a function of its intended use case and therefore its design.
“On the one hand, some Malaysian data centres can utilise a lower number of US-supplied GPUs or chip alternatives from non-US vendors because they are looking to address demand from non-AI related use cases, or less intensive AI use cases, thus insulating them from the AI executive order’s effects,” he explained.
Nonetheless, Lombatti said the main risks arise for data centres targeting high-density AI applications, particularly those in Johor aiming to attract Singapore-based customers seeking rack densities up to or even in excess of 120 kilowatt
“Therefore, Malaysian data centres designed around high-density racks using the latest US-manufactured GPUs face greater risks over the next few years. Owners may need to slow development or scale back to lower-density designs, leading to significant capital expenditure inefficiencies,” he said.
Ng remained optimistic the country will be able to continue to attract data centre investments, underpinned by Malaysia’s cost competitiveness in terms of land, labour and electricity.
“Additionally, Malaysia’s proximity to Singapore is a key factor. The geographical location is crucial for data transfer and connectivity, and many global players already have data centres in Singapore,” he said.
On this note, Kenanga Research said contractors are more insulated in the AI race to roll out data centres given the emergence of DeepSeek could accentuate Malaysia’s position in being able to provide the brick and mortar for the data centre competitively.
As for YTL Power, the research outfit said the negatives are priced in with data centres fully discounted in its share price. At this juncture, firm takers for YTL Power’s AI data centre GPU as a service may still be needed to re-rate the stock.
YTL Power International Bhd, Inari Amertron, Nationgate Holdings and PIE Industrial closed at RM3.11, RM2.52, RM1.79 and RM4.57, respectively, yesterday.
By ELIM POON
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