Cover:
-The generative artificial-intelligence revolution has primarily benefited computer hardware manufacturers, such as Nvidia, Dell Technologies, Super Micro Computer, and suppliers like Taiwan Semiconductor Manufacturing and SK Hynix. However, the emergence of DeepSeek, a Chinese AI lab, has challenged the belief that AI is expensive due to its high computing power requirements. DeepSeek's models are on par with leading U.S. offerings from OpenAI and Google, all built at a fraction of the cost. This could spark a value shift from hardware to software, as AI has been defined more by largess than finesse. Companies like Salesforce are pushing to integrate AI that will automate their existing business software, and if DeepSeek's cost-saving methods can be replicated, Salesforce's expense for AI features would drop significantly.
Interview:
-No update
Tech Trader:
-The viral social media post about a $6M artificial-intelligence model from Chinese company DeepSeek erased $1T in market value across the largest US tech stocks. The hype raised questions about America's AI leadership and tanked tech stocks, with the Nasdaq Composite index falling 3.1% and AI leader Nvidia tumbled 17%. However, DeepSeek did not replicate OpenAI's ability by spending a few million dollars. The $6M figure omits all R&D funds for the model's architecture, algorithms, data acquisition, graphics processing units, and test runs. Comparing a theoretical final training-run cost to US company spending on AI infrastructure is apples to oranges, and DeepSeek's overall cost is likely much higher. Bernstein semiconductor analyst Stacy Rasgon criticized the $5M figure as "fundamental misunderstanding" and called the $6M training figure "deeply misleading," emphasizing that a smart team couldn't train the DeepSeek model from scratch with a few million dollars.
The Trader:
-Stocks were concerned about various factors this week, including China's DeepSeek chatbot, Big Tech earnings, and the latest Federal Reserve meeting. However, the market seemed to emerge unscathed, with the S&P 500 index finishing the week down 1%. This was due to the market's anxiety that if a scrappy open-source Chinese model could match ChatGPT, AI could be significantly cheaper than previously anticipated. This could be a boon to users but a blow to megacap tech stocks pouring billions into their own projects. The Temu of AI DeepSeek is expected to dramatically alter the $2T of AI expenditures expected over the next three years. Almost immediately, attention turned to earnings from Meta Platforms, Tesla, Apple, and Microsoft, who did their best to reassure the market. However, the S&P 500 index remained nearly unchanged for the week through Thursday's close, with 333 gainers in the index compared to 169 stocks that lost ground.
-Royal Caribbean has announced its entry into the river cruise market, a high-yielding segment currently dominated by Viking Holdings, which skews towards wealthier consumers. The first two of 10 river ships are expected to be delivered in 2027, and bookings for these maiden voyages will begin next year. Royal shares have surged 17% in 2025 and have gained more than Nvidia over the past 12 months. The river ships' cost per berth is expected to be above the $340,000 to $355,000 spent on recent ocean ships, and the ships come with their own financial risks. Gimme Credit's Kim Noland noted that the 10 ships will cost about $5B in the coming years, meaning they are expensive and not without risk and could delay a near-term upgrade in RCL's credit profile. Despite the apprehension, the news looks good for Royal, as river cruising is a fragmented market that has been growing at a double-digit clip a year for a decade.
Features:
-Dollar-cost averaging is an investment strategy that can be particularly effective in volatile markets. In down markets, it can force investors to buy equities at bargain-basement prices when other investors are selling or sitting on their wallets. In up markets, dollar-cost averaging protects investors from betting all their chips only to see them tumble in value. For nervous investors, the key is to acknowledge that none of us know what will happen in the future in the markers. Dollar-cost averaging works by dividing the sum of $1M into quarterly payments, which can be invested over a year. If the market falls during this time, you will purchase a chunk of those equities at tomorrow's lower price. However, if the market continues to rise, dollar-cost averaging will net you less money than buying $1M of stock today.
-President Donald Trump confirmed that tariffs on Mexico, Canada, and China are coming this weekend, along with additional tariffs on chips, pharmaceuticals, steel, aluminum, and copper. The levies are a response to the countries failing to stop the flow of fentanyl and illegal immigrants into the US. Trump said that he would put tariffs on oil and gas "fairly soon" around the 18th of February, with oil possibly having a reduced tariff of around 10%. He also mentioned imposing tariffs on steel, copper, and aluminum at some point "this month, next month." Trump said "absolutely" that he will impose tariffs on the European Union at some point. The breadth of the levies will have a big impact on companies from auto makers to home builders. Mexico and Canada are the US's largest trading partners, with a combined $1.8T of trade in goods and services. A 25% levy on Mexico could potentially increase tariffs by about $131B annually, while the Canada tariffs would raise taxes by $106B.
Europe:
-Volkswagen stock has surged 20% in the past two months, outperforming German equities. The leading stock index, the DAX 40, is up 10% over the same period, while the S&P 500 index is about even. Volkswagen faces two main problems: cost and product. Average margins run 2%, while management is targeting 6%. VW was essentially priced for bankruptcy, but this is not the end of their troubles. The big test for product will come in 2026 when VW tries to play catch-up in electric vehicles with four models priced below 25,000 euros ($26,028). Leading Chinese producer BYD may be faster off the mark, with its factory in Hungary starting budget EV production later this year. The key to understanding other German stocks is that DAX 40 companies reap 80% of their revenue outside of Germany, so investors are anticipating tailwinds. Economic growth in Europe and globally is poised to accelerate this year, with the European Central Bank cutting interest rates and the US Federal Reserve paused.
Emerging Markets:
-No update
Commodities:
-The US is set to impose 25% tariffs on Canada and Mexico on Saturday, causing anxiety in the uranium and oil markets. Both oil and uranium are major exports from Canada to the US, and trading volumes of the Canadian iShares S&P/TSX Capped Energy Index have been down from normal levels. The Energy Select Sector SPDR ETF has been seeing higher-than-usual volume, and Canadians are trading with more trepidation. It was not immediately clear which products would be hit with tariffs and what the rates would be. Analysts say tariffs on oil could cause US gasoline prices to rise, as several American refineries rely on processing Canadian oil. If 25% tariffs on oil were passed completely along to consumers, it could raise gasoline prices 35 cents per gallon in parts of the country. Canadian producers might have to sell their oil at a wider-than-usual discount to American crude. A tariff on uranium could hurt Canadian producers such as Cameco, while potentially benefiting US producers like UEC.
Streetwise:
-Wall Street experts have proposed a trading strategy that suggests buying low and selling high, with the goal of buying a $30 stock and selling it when it hits $750. This strategy is based on the belief that higher prices may signal better quality or a recent gainer. However, experienced investors understand that share prices are arbitrary and can be adjusted through stock splits or reverse splits. Factors like the overall value of the business, debt and cash flows, and prospects for improvement or worse are more important. The "buy low, sell high" strategy is considered an ‘un-truism,’ as most trades represent disagreements about whether an issue is low or high. Stocks tend to rise over time, and index investors have made out well by buying high and holding out for higher. A more useful mantra might be to buy often and hold until it's someone else's problem, as you're either dead or rich enough to give it away. However, at the moment, the first person might be right, as three recent observations by the research investment committee at BofA Securities suggest.