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Market Quote: What’s Going on With Artificial Intelligence Stocks?
Author: The editor's desk
January 30, 2025
A mid-week analysis of what’s happening in global financial markets from the perspective of AGF’s investment management team.
Deep Thoughts
U.S. equity markets were rattled this past Monday by news of DeepSeek, a new open-source Chinese artificial intelligence (AI) language model, that was seemingly trained on a smaller budget than conventional wisdom thought possible yet still provides comparable capabilities to its more established, more expensively trained American-made competitors. In turn, this raised questions about the level of capital expenditure (capex) currently being spent by some of the AI industry’s most notable “hyperscalers” and whether DeepSeek is a disruptive force that could upend the current (and favourable) “economics” of AI-related stocks in the future.
Since Monday, however, cooler heads seem to have prevailed, with an alternative view taking shape that efficiency gains are good for all companies wanting to use AI. In fact, this may be true, in particular, for the companies doing the spending because it allows for more efficient use of their dollars. As such, we believe ongoing investment in AI infrastructure may not be a waste and could usher in more products. In the end, we expect the return on investment for generative AI offerings to increase, especially if the cost of compute is lower than expected.
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Hide and Seek
Monday’s AI-related selloff was rough on many investors, but it doesn’t negate the fact that January has been a very good month for U.S. equity markets. Both the S&P 500 Index and Nasdaq Composite Index remain higher year-to-date, and gains have been relatively broad-based across sectors as more money flows into companies with varying market capitalizations (and not just U.S. tech giants).
We believe a well-diversified portfolio can absorb losses like we experienced earlier this week and are encouraged that U.S. equity markets have already recouped some of their lost gains and seem to have stabilized.
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