Markets had a cult-like belief that a small group of US tech giants, led by Nvidia, would dominate the AI arms race. China’s start-up just changed that.
As US equity markets plunged on Monday night on the news China has upended the artificial intelligence arms race, veteran macro strategist Ian Harnett of Absolute Strategy Research released an update of his firm’s Animal Spirits Indicator, which showed mentions of the phrase in English language news and business media are currently running at a staggering six times the two-decade average.
Harnett also posted a fascinating question: is this a sign of real bull-market strength, or does this show an overvalued market running more on vibes than fundamentals?
Whatever the case, investors have just been delivered a savage reminder that overvalued, overconcentrated, overhyped markets are also incredibly susceptible to bad news.
It’s too early to know whether the 17 per cent plunge in Nvidia shares on Monday night in reaction to news that China has developed a ChatGPT competitor called DeepSeek in just a few months and at a cost of an estimated $US5 million ($8 million) – and apparently without Nvidia’s most advanced GPU chips – is the first sign that the tech giant’s stunning run is about to come to an end, or merely profit taking by investors who’ve ridden the stock’s seven-fold gain since the start of 2023.
Plenty of analysts are already calling this an overreaction and a buying opportunity, and they may well be right. But if nothing else, this episode should shake investors around the globe out of their complacency.
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