Executive Summary
The promising start to the year for global markets was short-lived, as the findings about Deepseek, a new and efficient gen-AI competitor from China left a sizeable dent in M-7 stocks and led to a decline in gains for U.S. markets. Deepseek is breaking the myth that gen-AI needs high computing power by claiming to be 20-50 times cheaper and more resource efficient than the incumbents. Deepseek has now opened a needed war where AI infrastructure cost is proving unsustainable. Taking a step back and looking at the big picture, U.S. has managed to create “industrial complex” in many key sectors from technology to military and leads in all of them. However, a closer look reveals that China is just behind at the number 2 slot in most of these sectors, with the third place being shared by different nations depending on the sector. Recent blog published by CFA opens an interesting discussion on whether the traditional DCF model, which is used to arrive at the fair value of stocks still holds relevance. If companies don’t live long enough and investors don’t invest long enough, why rely on a model that relies heavily on these assumptions?. High interest rates and low valuation have led to the stockpile of ageing private equity investments that needs quick monetizing. As private equity investments rest on timely churn of investments to provide distributions, the lack of exits will certainly wane investor confidence and therefore future commitments.
