Good morning everyone. Yesterday the stock market resembled a bloodbath — and it’s all because of China’s DeepSeek. We’re covering everything to know, plus what comes next. First time reading? Join 190,000 self-directed investors gaining an edge every morning. Sign up here. 

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China enters the AI race

Just a few days ago no one had ever heard of DeepSeek. 

Now the Chinese lab and its new artificial intelligence model are the only things anyone seems to care about — especially those on Wall Street, who collectively helped wipe out a a trillion dollars in value from the US stock market on Monday.

Investors got cold feet after DeepSeek, a relatively small company with a couple hundred employees, released an AI language model last week that outperformed OpenAI’s ChatGPT and other American competitors — built at less than 1% the cost.

The stock sell-off deepened Monday afternoon when DeepSeek launched a second open-source AI tool, the Janus-Pro-7B, which generates images and reportedly outperforms its US counterparts, including OpenAI’s popular DALL-E. 

The Nasdaq Composite tumbled more than 3%, and chip stocks led the fire sale.

“The initial reaction has been a sell-off without really knowing the true threat that this is,” said Jay Woods, chief global strategist for Freedom Capital Markets. 

Investors, he explained, are opting to sell first and ask questions later.

The big question is whether DeepSeek really did build its technology with less than $6 million in capital.

Remember, it was only last week that President Trump announced a $500 billion AI initiative led by OpenAI. 

Nvidia, for one, closed 16.9% lower Monday to shed $589 billion in market cap — the biggest one-day drop ever for a stock. 

Still, analysts from Bloomberg Intelligence shrugged off the news, saying that the company’s competitive edge remains intact. 

“Concerns over the possibility that Chinese startup DeepSeek's low-cost AI model will erode Nvidia's GPU demand seem premature,” said Kunjan Sobhani, a senior analyst who covers Nvidia for Bloomberg Intelligence.

“If anything, this could open a new budget-AI segment, where Nvidia might still gain share.”

Other chip, AI and energy companies, including members of the Magnificent Seven, also took a beating Monday:

• Microsoft: -2.14%

• Tesla, -2.32% 

• Arm, -10.24%

• Micron Technology, -11.67%

• Broadcom, -17.4%

• Constellation Energy, -20.85%

• Vistra, -28.27%

Notably, Meta and Apple finished the day in the green.

To Mark Malek, chief investment officer at Siebert, the knee-jerk reaction in the market presents a buying opportunity. 

While it’s possible that DeepSeek did find and create a cheaper, more efficient way to build an impressive AI model, that in his view is a net-positive for its American rivals. 

“You can count on the incumbents to adopt any new techniques found, no matter who finds them,” Malek said. “It is the basis for a competitive and rich market.” 

Anthony Pompliano agrees. In his letter to investors Monday, he cited Jevon’s paradox, which states that when a resource increases in efficiency, it creates an increase in consumption of that resource, not a decrease.

“The concern this morning is DeepSeek claims they built the new model using inferior chips to what many American companies have access to,” Pompliano wrote.

“This is supposed to make people bearish on NVIDIA, but instead I think people should be more bullish since NVIDIA’s competitive advantage is so obvious. For example, if DeepSeek could do this with inferior chips, imagine what they could do with NVIDIA products?”

The next twist arrives with Big Tech earnings.

On Wednesday, executives from Tesla, Meta, Microsoft and IBM will share their quarterly updates, followed by Apple and Intel on Thursday.

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Elsewhere:

🐳 DeepSeek was hit with a cyberattack. The company said Monday it would temporarily limit user registrations because of “large-scale malicious attacks” on its services. That said, it remains the top downloaded free app on Apple’s App Store. (CNBC)

📉 Bearish bets against Nvidia are flowing in. Many traders expect Nvidia’s slide to continue. There’s more than double the typical trading volume for Nvidia options contracts, market data shows. Some of the bets are pegged to the stock falling to $110 and $100 a share. (WSJ)

💰️ The world’s richest people took it in the chin Monday. The 500 individuals with the highest net-worths — including Nvidia CEO Jensen Huang, Oracle’s Larry Ellison, and Dell’s Michael Dell — together lost $108 billion in the single trading session. (Bloomberg)

Rapid-fire:

• Leveraged Nvidia ETFs lost billions of dollars in the stock sell-off Monday (Bloomberg)

• Nvidia issued a statement calling DeepSeek’s R1 model “an excellent advancement” (CNBC)

• DeepSeek’s innovation proves that the company needs more Nvidia chips, according to Nvidia (Reuters)

• Amazon tapped Whole Foods’ CEO to run Amazon’s entire grocery business (Bloomberg)

• Intel’s former CEO said the market is all wrong on DeepSeek (Business Insider)

Traders see 48% odds that DeepSeek finished 2025 with the best AI model, according to Kalshi, the biggest US prediction market:

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Last thing: