An AI bombshell from China sends markets tumbling
Equity markets moved higher last week amid a flurry of executive orders President Donald Trump issued in his first days in office, with the S&P 500 Index hitting a new high on Friday. Today came a bombshell that sent markets lower: Chinese company DeepSeek has been able to train its artificial intelligence models cheaply and without U.S.-made chips that until now had been driving the AI revolution.
Chief Investment Officer Thierry Hasse
Investors and tech industry observers had thought that the development of AI models required massive investment and chips like those made by Nvidia. But DeepSeek, whose app has risen to the top iPhone download in the U.S., has shown it’s possible to create a sophisticated, high-performing AI model without spending billions.
And that may call into question the massive spending that companies like Microsoft, Meta, Alphabet, and Apple have poured into their AI programs.
Investors will learn more this week as Microsoft, Meta, and Apple release their quarterly earnings reports. On Wednesday (Jan. 29), Microsoft will provide a fresh look on how AI can boost profits and Facebook will reveal if its AI investments are translating into higher advertisement revenue. Apple, which reports on Thursday (Jan. 30) will need to reassure investors on the state of the iPhone market and its AI efforts.
Market recap
All three major market indices had a second straight positive week last week, erasing the mini slump experienced in December. The S&P 500 recorded a new intraday record on Friday morning at 6,128 (Source: CNBC). The absence of any meaningful economic decisions in the initial round of executive orders let market participants focus on corporate news and reward companies that released positive earnings reports. Netflix was a good example. Its stock soared 14% on the week as the streaming entertainment company reported earnings that beat market expectations and announced that it added a stunning 18.9 million subscribers. (Source: Company news release).
Consumer sentiment sinks
Last week’s positive mood in the stock market was dampened by the decline in the U.S. consumer sentiment for the first time in six months (Source: University of Michigan Index of Consumer Sentiment). The uncertainty of the impact of potential tariffs on inflation is weighing on consumers. The high cost of living remains the No. 1 preoccupation of American consumers. They now expect prices to rise at an annual rate of 3.2% over the next five to 10 years. In addition, worries are starting to develop on the employment front as the new administration has promised to shrink the size of the federal workforce.
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