DeepSeek AI: A New Stock Market Disruptor?
DeepSeek’s Impact on U.S. Stocks Yet to Be Fully Realized, Says Conning’s Don Townswick
The rise of Chinese AI startup DeepSeek, which promises more affordable and energy-efficient artificial intelligence solutions, has yet to be fully reflected in U.S. equity markets.
That’s the assessment of Don Townswick, director of equity strategies at Conning Asset Management, which oversees $170 billion in assets.
“If DeepSeek’s technology turns out to be less groundbreaking than anticipated, the ‘Magnificent Seven’ stocks will likely retain their dominance,” Townswick told MarketWatch.
Conversely, if DeepSeek delivers a truly cost-effective AI alternative, it could level the playing field. “This would make AI adoption much more accessible for a broader range of companies, driving efficiency gains and boosting earnings beyond the current tech giants,” he said.
AI Spending Continues to Surge
DeepSeek’s chatbot launch earlier this month sent shockwaves through Wall Street, triggering a staggering $600 billion market wipeout for AI chip leader Nvidia (NVDA).
The event also heightened scrutiny over the massive capital investments in AI infrastructure by U.S. tech giants. However, instead of pulling back, companies are doubling down.
Meta Platforms (META) CEO Mark Zuckerberg recently spoke of investing “hundreds of billions of dollars” in AI over the coming years, with $60 billion to $65 billion allocated for this year alone. Alphabet (GOOGL) followed suit, forecasting $75 billion in capital expenditures for 2025—surpassing analysts’ expectations. Meanwhile, Microsoft (MSFT) reported a 95% year-over-year surge in AI and cloud-related spending, reaching $22.6 billion in its fiscal second quarter.
“Investors are wondering how much more needs to be spent before AI investments start to slow,” said Robert Pavlik, senior portfolio manager at Dakota Wealth Management. “When is enough, enough?”
Nvidia shares rebounded on fresh AI spending commitments, but declines in Tesla (TSLA), Apple (AAPL), and Amazon (AMZN) suggest growing concerns over President Donald Trump’s trade war. The U.S. recently imposed a new 10% tariff on Chinese goods, while threats of 25% tariffs on Canada and Mexico were postponed by a month.
Market Rotation and Growth Challenges
Despite the continued focus on AI stocks, investors are beginning to shift their attention to other sectors.
“We’re seeing some rotation,” said Garrett Melson, portfolio strategist at Natixis Investment Managers. “While tech stocks have been under pressure, defensive and interest-rate-sensitive sectors are gaining traction.”
Townswick remains cautious, noting that the once-explosive earnings growth of the “Magnificent Seven” has slowed from 61% in Q4 2023 to a projected 16%–18% by the end of this year. While still robust, this decline brings their growth rate closer to the broader S&P 500’s expected 12%–13%, potentially making their high valuations harder to justify.
Despite market turbulence, Melson sees reasons for optimism.
“The most surprising takeaway from the past few weeks—despite DeepSeek’s emergence and trade tensions—is that stocks are still near all-time highs,” he said. “That speaks to the resilience of this market.”
