Best Part of the DeepSeek Story

The humbling of the hubris of the tech bros was worth the price of admission.

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Sick of DeepSeek yet?

I know I am, and it should be any minute now before another narrative whipsaws us to the next news cycle and panic or stock market promote du jour.

But after letting this sink in for a day, a few thoughts, starting with…

Regardless of whether DeepSeek is all it claims to be, the theme of this story in The Guardian nails the absurdity of some of what we're watching from the bro bullies.

As columnist Arwa Mahdawi writes…

All these tech gurus who fancy themselves special little geniuses entitled to unilaterally “reconfigure” the world are freaking out. Why? Because China has made them look incompetent by releasing DeepSeek, an AI chatbot developed at a fraction of the cost of its US rivals. DeepSeek wiped $1tn off the pre-eminent US tech index in one day. If only I had an AI-powered drone to see just how panicked Altman and Ellison are now.

Truth be told, I’m not sure these guys are panicking at all, let alone feeling humbled. Some personalities just don’t think any of it applies to them.

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While the latest version of DeepSeek’s AI claims to be astronomically cheaper to produce than the U.S.-dominated status quo, it’s not as if what they were working on was a secret – or not known.

Plenty of Breadcrumbs

Breadcrumbs about the "cost-effectiveness" of what DeepSeek is doing have been dropped for MANY months, including this from July….

And this from August…

And this from September…

Good luck trying to figure out what the full implications will be. Most of us have no idea what any of this means, but the subsequent earthquake in stocks from something none of us ever heard of of shows just how vulnerable this market is. And how much it’s hanging by the thread of a single theme.

Beginning of the End?

Whether it’s Black Swan author Nassim Taleb warning that Nvidia’s comeuppance is a preview of things to come, telling Bloomberg…

“This is the beginning, the beginning of an adjustment of people to reality. Because now they realize, now, it’s no longer flawless. You have a small little chip on the glass.” is just a taste of what’s in store for investors who blindly piled into Wall Street’s AI-driven stock rally.

Or my friend, the always-compelling contrarian Peter Atwater writing in his Financial Insyghts newsletter…

The over-investment in AI makes the overinvestment in fiberoptic cable at the peak of the dot.com bubble look like pocket change.

Bubbles exhaust. While DeepSeek offers investors a clear catalyst for the sell-off, the backdrop of overdone over-the-top overindulgence cautions that this is just the beginning of the end.

I have no idea if either of them is right, or just early. What I do know is that what just happened released pressure that has been building for years. It was obvious, and as I wrote last week…

While l think we all can agree that long term the markets go higher, at these levels is a giant game of chicken on when it will correct… and then how deep the correction will be and how it will last.

All of which gets us back to DeepSeek, unless of course it turns out to be DeepFake, which I doubt will be the case.

Freaking Out

If you really want to understand what is happening, perhaps the most cogent view comes from Ben Thompson of Stratechery, who wrote the ultimate FAQ on what’s likely the real story and impact of DeepSeek. On the question about why everybody’s freaking out, he answered…

I think there are multiple factors. First, there is the shock that China has caught up to the leading U.S. labs, despite the widespread assumption that China isn’t as good at software as the U.S.. This is probably the biggest thing I missed in my surprise over the reaction. The reality is that China has an extremely proficient software industry generally, and a very good track record in AI model building specifically.

In other words, it’s a big world out there and whether China is telling the full truth or only part of the truth on DeepSeek’s ability to beat the U.S. at its own game isn’t what matters.

Pays to be Paranoid

What matters is that it’s easy for investors to wear blinders when it comes to competition… and what may swoop in out of left field.

Everybody thinks they know what the likely “surprises” will be, but the very nature of a surprise is something that is unexpected. That’s why, as the late Intel CEO and visionary Andy Grove wrote, “Only the Paranoid Survive.” (A case study in irony, if there ever was one, given Intel’s own demise.)

That’s clearly been lost on the bro culture, where hubris hails.

One final thought, courtesy of my friend Bill Bishop, who writes the Sinocism newsletter, a must read if you have any interest all in what’s really going on in China…

Indeed it would. And it would have been perfectly legal.

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DISCLAIMER: This is solely my opinion based on my observations and interpretations of events, based on published facts and filings, and should not be construed as personal investment advice. (Because it isn’t!) I do not have a position in stocks mentioned in this report.

Feel free to contact me at herb@herbgreenberg.com.