I remember how cool Friendster and Myspace were… until that Facebook thing came along and crushed them out of existence.
But at least I could still appreciate Pandora… until Spotify came along.
Thank God I can still get my groceries delivered by Webvan! Oh wait…
This is the first fascinating lesson/reminder from the massive disruption we’re seeing across the entire world as a result of a single AI startup surfacing last week.
That startup is DeepSeek, a Chinese AI firm that is as good as or even better than the major AI firms started here in America.
What is scaring the markets so much is the fact that DeepSeek spent a tiny fraction of what American AI firms spent to develop its AI.
It is also open source, meaning anyone can see the code and make improvements, and DeepSeek itself is expected to continually improve at a much faster pace than American AI firms.
As I type this, tech stocks are tanking in response to DeepSeek’s emergence. As a result of that – interest rates are falling as investors “fly to the safety” of Treasury Bonds (more demand for bonds pushes bond prices up and yields down).
Firms with huge AI investments like Google, Meta, Microsoft, and OpenAI are all getting whacked in the stock market right now.
These companies have spent billions developing their AI platforms, and this small upstart is threatening them all with a vastly smaller investment and a new model.
Equally interesting is what is happening to major microchip firms like Nvidia, Broadcom, AMD, and Taiwan Semiconductor.
These stocks are getting crushed too because DeepSeek’s model shows that AI platforms can be developed with far less computing power (and chip requirements) than previously believed.
NOTE: X is littered with info about DeepSeek using more computing power and Nvidia chips than they’re letting on, as well as info about DeepSeek’s weaknesses, but so far, the above narrative seems to be winning.
Interesting Reminder: First Movers in New Industries Rarely Succeed
What do Netscape (web browser), Friendster and Myspace (social networks), Pets.com (online pet supplies), Webvan (grocery delivery), Kodak (digital cameras), Palm and BlackBerry (smartphones), Skype (video conferencing), and Yahoo (search engine) all have in common?
They were all very clever first-movers tapping into huge markets in which the sky should have been the limit, but they all instead got crushed by 2nd mover upstarts.
2nd mover success stories include Google, Facebook, Amazon, Apple’s iPhone, Netflix, Tesla, Airbnb, Instagram, Spotify and Zoom.
The point is that investors in the AI boom should have been more concerned about disruptions.
This is also a reminder of how upstarts can come out of nowhere and disrupt even the most powerful and entrenched firms.
Government Support Is Terrifying
I remember how jealous I was of my friend’s Japanese cars in the 1970s, as I was constantly under the hood of my Ford Maverick replacing batteries, water pumps, alternators and more while my friends drove their Japanese cars into the ground while never touching them.
This is a reminder of how important competition is, as American companies were able to build and sell pure junk until the Japanese came along and cleaned their clocks. Thank God politicians were not able to stop them.
Mr. Trump is all in on America’s AI boom, and in full support of the Stargate 2025 Project (a $500 billion AI investment consortium with OpenAI, Oracle, SoftBank, and MGX).
There is talk on X already that Mr. Trump might “ban” DeepSeek for security, jobs, and/or American competitiveness reasons – and nothing scares me more.
Whatever DeepSeek’s weaknesses may be, it is clearly showing how much upstarts can disrupt industries and how foolish it can be for a government to get behind a single investment strategy.
Japan illuminated this in the 1980s when it supported failing semiconductor, aircraft and consumer electronics firms (they wanted better portable cassette tape players while America was on its way to smart phones).
Volatile Stock Market/Flight to Safety
The 10-Year Treasury Yield has been falling all morning, as investors move from stocks to the safety of bonds.
This is all because a single upstart firm illuminated a weakness in an industry that investors thought America had a stranglehold on. Not so much.
This is another reminder of how dependent the stock market is on just a few tech stocks, and of how precarious the stock market is overall.
We will inevitably see more stock market corrections – and rate-drops as a result.
