What’s happened since January?
Earlier this year, the markets were shocked by a Chinese AI model called DeepSeek. Lots of hasty conclusions were drawn by the media and by investors. The consensus was that the efficiency gains from this particular model portended less future demand for AI hardware. Nvidia was down 17% in one day on that news.
As we wrote in What is DeepSeek?, nothing could have been further from the truth.
It’s about 7 months later. What has happened to the capital spending plans for the largest purchasers of AI hardware since DeepSeek was released?
We’ve seen capital spending estimates increase by more than one hundred billion dollars per year since DeepSeek was released.
Why is this the case? As we argued previously, cheaper and more efficient models mean the models actually get used more. This has been true for a long time. DeepSeek’s efficiency gains were given a lot of attention, but making models more efficient is nothing new—AI calculations have consistently gotten cheaper and better over the last decade due to both software and hardware improvements. We’ve reached a point where these models are incredibly useful—and that’s driving tremendous demand for them.
Here’s one example: Google recently reported that in June, its AI systems processed twice as much data as just the month before—and about 100x the monthly usage from a year ago.
Both the economy and the markets have become increasingly centered around technology. Understanding technology is essentially a requirement for understanding the world today. It can be difficult to draw the right conclusions from highly technical matters. With DeepSeek, the vast majority got it wrong.
At Dock Street, we aim to be lifelong learners. We read widely and deeply. We believe this is essential for navigating our increasingly technological world.
Best regards,
Evan McGoff
Disclosure: Dock Street Asset Management, Inc. and/or our clients may own Nvidia (NVDA) and Google (GOOG). This article is not intended to be used as investment advice.
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