China’s Revolutionary AI App, DeepSeek — How Two Markets Reacted
Sunday’s overnight Stock Futures were in turmoil. Everything was being sold — across the board, nothing but red. I furiously began to search for the reason behind this knee-jerk reaction.
The answer came quickly. China has introduced a new Artificial Intelligence App called DeepSeek. Introduced late Friday night/early Saturday morning US time, the App was a sensation at the Apple App Store. It was rocketing ahead in downloads as thousands on the internet sought out this very capable, entirely free, and open-source new App.
However, while those internet denizens were behaving like a bunch of kids in a candy store over at Broad and Wall, they were in apoplexy, melting down over this seemingly (at least to us AI novices) innocuous new App.
Today, we’ll explore the reasons behind these entirely opposite reactions: euphoria at the App Store and despair on Wall Street.
Wall Street
As I indicated, Sunday evening began poorly, with the market heading south in a very big way. If something wasn’t done, things were looking pretty dire. Then, slowly, at first, a bid began to come into the market, and prices that had been plunging began to stabilize. By all appearances, the Calvary seemed to be coming to our rescue.
From late Sunday onward, the market had all the earmarks of a massive intervention by the forces in Washington. Most of the investing public now understands that the central government has at its fingertips the ability to exert tremendous pressure on the Stock and Bond Markets.
Not only is there the famous “Plunge Protection Team” (more correctly: The Presidents Working Group on Financial Markets, created by President Reagan after the 1987 Crash), but there are also the ready and able forces of the Federal Reserve Board and US Treasury. You may recall the extraordinary actions of the Fed during the 2008 Great Financial Crisis, opening the discount window, lowering interest rates, and eventually providing “Quantitative Easing.”
While I don’t believe these later strategies were employed this week, there is reason to believe that the Plunge Protection Team was busy. This group acts just like the firemen in the LA Fires, extinguishing those hot spots that are easy to put out while letting others “burn themselves out.”
By the time future trading ended early Monday morning, the Dow Jones Industrial Average had already recovered. Shortly after trading began, the Dow moved into the black. This is a consistent strategy for the PPT. After all, the Dow, with only 30 issues, is the easiest market indicator to influence. So even though Nvidia is in the Dow, it can be overcome with positive moves in the other 29 stocks.
So, for those who missed Sunday evening’s drama, nearly everything was back to normal by Monday. Granted, some gigantic losses were recorded in the AI Chip sector: Nvidia -17%, Broadcom -17%, and Arista Networks -22%. But the overall market seemed unscathed — the Dow finished higher for the day.
The financial firemen had done their jobs; the fire was out, although, like the LA Fires, there were a couple of smoldering hulks.
What’s instructive here is how forceful the reaction had to be to overcome what seemed to be a lightweight challenger from China.
The Apple APP Store
Meanwhile, DeepSeek continues to surge ahead of the Subscription Model ChatGPT in the markets that count the customer’s downloads. For the average consumer, free is the level of consumer demand for AI Apps. Dial 2469, a ChatGPT user reviews DeepSeek on the Apple iStore. After noting the current limitations for writing using DeepSeek, Dial 2469 thinks it needs a larger text box and a better word wrapping function; Dial then says:
“Definitely will stop paying for Chatgpt and only use this app when it gets better."
https://apps.apple.com/us/app/deepseek-ai-assistant/id6737597349
Free versus subscription is a challenging hurdle for American Business Models to overcome. US AI companies have spent billions so far on their AI development, with billions more promised by President Trump to support their efforts. But where does the payoff come from? What’s the Return On Investment when your chief competitor just gave away their version for free? That sent chills down investors’ spines on Monday when $1 Trillion was lost in the AI Sector of the Market.
This story is far from over. How it plays out will greatly influence the financial markets and the overall economy. America has made a giant bet on Artificial Intelligence. What’s the return?
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