A Chinese AI startup roils Big Tech … Trump will “demand” lower rates … the no-brainer investment of datacenters … crypto sector enthusiasm soars As I write Monday morning, AI-related tech stocks are deep in the red. Behind the selloff is the news that Chinese company DeepSeek has just released a free, open-source AI model called R1. It has allegedly outperformed OpenAI in a variety of tests and can directly compete with OpenAI and Anthropic. The numbers at play raise an eyebrow, to say the least. While the Mag 7 companies have been allocating billions to their AI research, in December, DeepSeek launched an open source large-language model for what it claimed was less than $6 million. From CNBC: Jefferies analysts estimated that a recent version had a “training cost of only US$5.6m (assuming US$2/H800 hour rental cost). That is less than 10% of the cost of Meta’s Llama.” But regardless of the specific numbers, reports agree that the model was developed at a fraction of the cost of rival models by OpenAI, Anthropic, Google and others. And here’s more from MarketWatch: The [$5.6] million number, though, is highly misleading, according to Bernstein analyst Stacy Rasgon. “Did DeepSeek really ‘build OpenAI for $5M?’ Of course not,” he wrote in a note to clients over the weekend. That number corresponds to DeepSeek-V3, a “mixture-of-experts” model that “through a number of optimizations and clever techniques can provide similar or better performance vs other large foundational models but requires a small fraction of the compute resources to train,” according to Rasgon. But the $5 million figure “does not include all the other costs associated with prior research and experiments on architectures, algorithms, or data,” he continued, adding that this type of model is designed “to significantly reduce cost to train and run, given that only a portion of the parameter set is active at any one time.” Regardless of the specific cost, it appears that DeepSeek is functional at a dramatically lower cost than U.S. AI models And this is raising fears that U.S. Big Tech is spending too much, which is weighing on the Mag 7 stocks as well as other AI chipmakers. As I write late-morning, Amazon is down 1%, Alphabet is lower almost 3%, and Microsoft is off nearly 4%. But the biggest loser is Nvidia, down more than 17%. The outsized losses are piling up because DeepSeek is purportedly operating without the most advanced Nvidia gear. Now, before you sell your AI stocks, legendary investor Louis Navellier is urging a measured response. From this morning’s Growth Investor Flash Alert podcast: I want to be very clear about something, folks. I think once we learn more about the situation, we’re going to see an incredible reversal – for two primary reasons. First, there’s no way that President Trump is going to let a Chinese app derail the United States tech industry. Second, AI can be something as simple as optimizing various packets of data, or it can be the machine learning that NVIDIA is pioneering. Right now, there’s no evidence that DeepSeek is doing machine learning. I’ll also note that the Chinese government and various Chinese companies have a history of not always being 100% accurate with some of their claims. So, while this is something to take seriously, we’ll reserve ultimate judgement for when we have more information. That said, we’ve been highlighting the elevated valuations of the Mag 7 stocks (and other AI-related market leaders) for a long time now. This is what happens when “priced for perfection” runs into imperfection. We’ll keep you updated as this story develops. | Recommended Link | | | | You saw the guest list last Monday – Mark Zuckerberg, Elon Musk, Jeff Bezos. All front and center at Trump’s swearing in. All three billionaires clearly understand what’s at stake over the next four years. Do you? Every executive order. Every bill. Every technological leap. They will set the tone for the markets and determine which sectors soar and which crumble. If you don’t have a plan of action yet, you can’t afford to put off watching The Most Profitable 100 Days of Your Life any longer. Click here to stream now… |  | | “Trump vs Powell” could be on the way Last week, in speaking to global politicians and business leaders via video at the World Economic Forum in Davos, President Trump set the stage for a showdown between him and Federal Reserve Chairman Jerome Powell. From Trump: I’ll demand that interest rates drop immediately… And likewise, they should be dropping all over the world. Interest rates should follow us all over. This is a headscratcher for two big reasons… First, interest rates have been dropping – at least the ones that our officials can directly control. As you’re aware, the Federal Reserve has cut the Fed Funds rate 100 basis points since last fall. And as we’ve detailed here in the Digest, there’s a strong case to be made that this was too much cutting, risking a flare-up of inflation. Second, what Trump really wants are hyper-dovish economic conditions that promote widespread growth. But the last four months have illustrated that the Fed has limited ability to create such an outcome. The single most important number in the entire global financial market – one that can influence the growth that Trump wants – is the 10-year Treasury yield. Scores of other interest rates take their cue from the 10-year yield. Unfortunately, neither Jerome Powell nor any other central banker sets this rate. While it varies based on market conditions, the 10-Year Treasury Note’s market cap is in the range of $10 trillion This gargantuan size reflects global bond-market participants buying and selling the 10-year every day. And it’s their transactions that establish the 10-year Treasury yield – not Powell or any other banker. Now, even though the 10-year Treasury yield often takes its cue from the Fed Funds rate, their directions don’t have to move in unison. And in fact, since September, while the Fed cut interest rates 100 basis points, the 10-year Treasury yield soared more than 100 basis points. 
Trump can “demand” lower rates all he wants, but it’s mostly just shouting into the wind. Even if Powell “bends the knee” and continues cutting rates, the global bond market will do whatever it wants with the 10-year Treasury yield. Now, if Trump truly wants lower rates that support explosive economic growth, then there is one thing he can do… Stop putting the fear of God into the bond market about tariffs. Fortunately, that appears to be happening – which is why bond yields have been easing and stocks been rallying (prior to today) Let’s jump to Bloomberg from Friday: President Donald Trump said he’d prefer not to have to impose tariffs on China, his latest dovish remark toward the world’s second-biggest economy even as he continues to threaten sweeping action. “We have one very big power over China, and that’s tariffs, and they don’t want them,” the US leader told Fox News host Sean Hannity in an interview that aired Thursday in the US. “And I’d rather not have to use it. But it’s a tremendous power over China.” Our hypergrowth expert Luke Lango, editor of Innovation Investor, believes this softer language is directly responsible for the market’s recent climb. Better still, he sees it continuing. From Luke: Trump has been back in the White House for [roughly one week] now. And despite acting on a lot of his other key political initiatives like energy deregulation, immigration reform, and federal spending, he has yet to take any action on tariffs… That’s comforting Wall Street because that talk was supposed to turn into walk by now. Trump had said that he planned to introduce tariffs on Day One… not February. Wall Street is interpreting the lack of action as a sign that maybe Trump will go ‘light’ with tariffs in his second term. We think that’s the correct interpretation. And if so, it means stocks should keep rocketing higher. Trump has mused that he could enact tariffs on February 1st, which is this Saturday. We’ll be watching closely, but as it looks and sounds today, his hawkish rhetoric is cooling. If we get through this weekend without new tariffs, we wouldn’t be surprised to see fireworks on Wall Street next week. Switching gears, the proposed datacenter will be “so large that it would cover a significant part of Manhattan” So wrote Meta CEO Mark Zuckerberg. In a Facebook post last Friday, Zuckerberg wrote that Meta plans to invest up to $65 billion in AI projects in 2025. That includes building a massive new datacenter. Back to Zuckerberg: This is a massive effort, and over the coming years it will drive our core products and business, unlock historic innovation, and extend American technology leadership. For perspective, $65 billion is more than the annual GDP of Luxembourg, Iceland, Cyprus, Estonia, and Mauritius. The news underscores a point we’ve been stressing in the Digest for months… Please invest in all-things AI-datacenters. Now, as quickly as I write this, we need to address this morning’s news from China. If DeepSeek can perform at the same level as OpenAi and Anthropic – and yet at vastly reduced power – it would be a massive headwind for AI-datacenter and related stocks. But we’re nowhere close to jumping to that conclusion. Neither is Louis. Back to his update this morning: Right now, there’s no evidence that DeepSeek is doing machine learning, okay? There are a lot of things that can optimize or rearrange data or point you in the right direction, but machine learning is totally different. It takes a lot of computing power, and that’s why you need all this AI hardware. That’s why we need to double the utility grid and build out more data centers, etc. We remain very bullish on AI-datacenters. With that in mind, investors have an abundance of options for how to invest today: Companies that supply components for datacenters… REITs that specialize in datacenter real estate… energy companies focused on natural gas that will fuel the enormous energy consumed by datacenters… companies that provide the cooling technology and power management needs of the datacenters… companies that offer the fiber optics and connectivity supplies required by datacenters… Sure, you could invest in a company that turns out to underperform on a relative scale, but the underlying investment trend itself – datacenters – is a homerun and will drive trillions of dollars over the next decade. Here’s Goldman Sachs: For years, data centers displayed a remarkably stable appetite for power, even as their workloads mounted. Now, as the pace of efficiency gains in electricity use slows and the AI revolution gathers steam, Goldman Sachs Research estimates that data center power demand will grow 160% by 2030… Over the last decade, US power demand growth has been roughly zero, even though the population and its economic activity have increased… But that is set to change. Between 2022 and 2030, the demand for power will rise roughly 2.4%, Goldman Sachs Research estimates — and around 0.9 percent points of that figure will be tied to data centers. That kind of spike in power demand hasn’t been seen in the US since the early years of this century. It will be stoked partly by electrification and industrial reshoring, but also by AI. Data centers will use 8% of US power by 2030, compared with 3% in 2022. Bottom line: We believe datacenters will drive enormous investment returns this decade. And if news out of China changes that outlook, we’ll update you immediately here in the Digest. Jumping sectors, crypto bulls “don’t even know how to process this much good news for crypto at once” The quote comes from a crypto insider profiled in a MarketWatch article last week. Behind the excitement is an executive order on cryptocurrencies signed by President Donald Trump last Thursday. From MarketWatch: The order Trump signed sets up a crypto working group that is expected to propose a federal regulatory framework governing the issuance and operation of digital assets. It also calls for the group to evaluate “the potential creation and maintenance of a national digital-asset stockpile, and propose criteria for establishing such a stockpile.” Stepping back, we’re witnessing a sea change moment in how our government approaches digital assets. As we’ve profiled here in the Digest, Gary Gensler, the Chairman of the Securities and Exchange Commission (SEC) under President Biden was loathed by the crypto community. His approach to digital assets was mostly adversarial and litigious. No more. Gensler is now gone, replaced by crypto-friendly Mark Uyeda as acting SEC chair. Meanwhile, Trump has called himself “a crypto president.” And last week, in his video address to the crowd of global leaders at Davos, Trump repeated his plan to make the U.S. the “world capital” of crypto (and AI). Luke recently made the case for global governments following suit behind Trump and his pro-crypto policies…and the potential impact on crypto prices. From Luke’s Flash Alert in Crypto Trader: [Trump] will be the first pro-crypto president we’ve ever had, and in so doing, he will likely standardize nationwide crypto acceptance in a manner it simply has not been standardized before… So… if the new administration compels the U.S. government to start buying Bitcoin in earnest in 2025, it’s likely that lots of countries will follow suit and start buying Bitcoin themselves. Canda. Mexico. Japan. The United Kingdom. Germany. Italy. France. So on and so forth. The result could be a Bitcoin buying frenzy by nearly every major country in the world. Big picture, expect Bitcoin to remain volatile, so don’t invest beyond your personal “sleep comfortably at night” threshold, but with Trump at the helm, the crypto sector’s upside potential outweighs its downside risk. At some point, this will change. But for now, we’re long crypto. We’ll keep you updated on all these stories here in the Digest. Have a good evening, Jeff Remsburg | 
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