Dear New World Investor:

AI stocks are getting pounded today due to the Chinese company Deepseek releasing an open-source AI model that’s much less expensive than OpenAI, Llama 2, or any of the other major competitors. What the market is missing is that this is all massively bullish for the AI supercycle.

Deepseek just improved efficiency dramatically and every other top Large Language Model will adopt Deepseek’s methods and improve their models faster, and do it all with more efficient use of compute power. That means better AI apps and AI agents are coming sooner, faster, and better than previously thought. It means that innovation is occurring at more than just the compute level, driving the exponential curve up – not down. And that means a lot more inference spending.

Nvidia (NVDA) will see more demand for its chips, not less. I have no doubt their price per chip will steadily fall – that’s been the semiconductor business model for decades. Cheaper chips mean more possible applications. More possible applications mean cheaper, more powerful products. Cheaper, more powerful products mean higher volumes of chip sales.

Also, Nvidia’s chips are at the center of a whole ecosystem including its CUDA development software and applications software for numerous industries from biotech to manufacturing to full self-driving cars to humanoid robotics.

As ISI put it this weekend: “Flexibility trumping TCO [total cost of ownership] is where NVDA maintains its core edge against ASIC competition and when the playing field is moving as fast as we continue to observe, the optionality implicit in the NVDA ecosystem is hard to understate.”

Take advantage of today’s stock price drop. Buy NVDA.

Meta Platforms (META) gains from the Deepseek model, but the market seems to have figured that out. They just guided for $60 billion to $65 billion in capital spending in 2025, a big year-over-year increase. Any sign that capex growth can slow is a big boon to Meta’s free cash flow. Better, faster, and cheaper AI means a better return on investment for Meta’s ad technology. Plus, their open-source approach will be seen as validated.

META is a Hold – Buy or add whenever it hits its lower Bollinger Band, now under $582.

* * * * *

Your Editor,

Michael Murphy CFA
Founding Editor
New World Investor

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