Advisors On Edge After $1T DeepSeek Selloff

Let’s all just take a DeepBreath.

DeepSeek — China’s answer to ChatGPT that’s reportedly just as powerful and much more cost effective — set off an international AI arms race over the weekend that led to a $1 trillion stock market rout. Nvidia’s 17% plunge Monday was the largest single-day drop in US history and reminded advisors that, yes, even the untouchables are vulnerable to a flash crash. While the sector has since pared losses, investors were left wondering if the $500 billion in new investments from the likes of OpenAI, Softbank and Oracle, might be a tad overcooked. And even though the AI boom is just getting started, new competitors, like DeepSeek, are making it harder to pick the ultimate winners. 

“We’re in new territory here,” said Philip Alberstat, managing director at the advisory firm Embarc Advisors. “The market’s still figuring out how to value AI assets.”

I’m in Too Deep

The DeepSeek news certainly hit at an interesting time for Big Tech. Fourth-quarter earnings are on deck this week from Mag 7 stocks, like Meta, Microsoft, Tesla and Apple. While Wall Street is expecting growth to fall to just 22% — the slowest rate in nearly two years — some analysts said that would be enough to justify current valuations. “Keep an eye on earnings,” Alberstat told The Daily Upside. “They’ll tell us who’s actually making money from AI and who’s just talking about it.” 

For advisors, solid business fundamentals obviously matter. While there are certainly examples of AI-related stocks that are overpriced, the sector as a whole still has value plays, said Evan Feagans, senior equity analyst with TCW. There will be winners and losers, which also means “prime opportunity” for savvy advisors. Feagans cited a standout metric:

• The Nasdaq Composite index is currently trading at a six-turn, next-twelve-months P/E premium relative to the S&P 500. (A fancy way of saying: the market likes its future earnings potential.)
• But, that metric is also well within the historical range, meaning there may still be room for Big Tech to run, according to the TCW data.

“Given that it is one of the most promising investible secular growth opportunities, we believe that reducing exposure could lead to underperformance,” Feagans told The Daily Upside.

You’re My Best Frenemy. The new competition might not necessarily be all bad. The DeepSeek advancements could put pressure on the segment and push companies toward further advancements and efficiency. Better AI products would likely lead to higher returns on those investments. 

The recent tech selloff was likely more about market exhaustion than any real concerns about the future of the technology, Alberstat said. The “healthy reset” will help separate the innovators from the AI hype. “The AI landscape is moving faster than anything we’ve seen before,” he said. “Stay flexible.”