Chief Investment Strategist, The Freeport Society
It’s been the talk of the town all week.
And I’ve certainly had my fair share to say on the matter.
But a few days ago, Tony G. reached out to me with some interesting questions.
Per Tony,
Thank you for your insight in the world of investing, I enjoy the reads. Thank you for two very simple questions you asked DeepSeek.
My question is about the elephant in the room, China.
Why would we believe anything they print or say?
The cost to build? I have not heard anyone doing a deep dive into the company and digging into their financial records.
How much electricity does it really consume?
Has anyone personally looked at their consumption and measured the amount of electricity?
Most importantly the information those companies across the globe will be feeding into this AI will be handed over to China. They will be giving to China free information about themselves and or the company they work for.
I hope no intellectual secrets or threads that could harm those who use free stuff fall into the wrong hands.
Remember, nothing is free. There’s always a cost somewhere.
Your thoughts?
You’re spot on, Tony… and I thank you for asking those very legitimate questions.
Today, I hope to give you some answers from some of the smartest men, traders, and investors I know.
Recently, investing masters Louis Navellier, Luke Lango, and Eric Fry discussed the questions you asked, Tony… along with many other urgent considerations surrounding the disruptive arrival of DeepSeek.
For example, can Nvidia survive this moment?
What now?
Where to next?
Click on the video to watch what Louis, Luke, and Eric have to say about this Sputnik moment.
And Tony, you’ll be particularly interested to hear what Louis says in answer to your questions.
In case you need a quick refresher, DeepSeek claims that its R1 and V3 models perform better than or close to ChatGPT.
It brags that its AI search algorithms use significantly less power than ChatGPT and other AI large language models (LLMs).
And it supposedly does all this with 90% less development costs than anything the U.S. has produced.
The news broke last Sunday… a time Louis finds particularly telling, as he explains in the video.
As a result, the entire roadmap of how AI is supposed to evolve is being questioned.
Some investors are wondering whether or not the chip-hungry and energy-intensive U.S. AI industry will win the AI race. This led to a massive selloff in AI names, with Nvidia losing a staggering 17%, and many of the AI infrastructure/power names losing even more.
But this is a good reminder that the stock market is really just a manic crowd. And crowds react. They don’t think. In fact, the bigger the crowd, the lower the IQ.
So, we should take the stock market’s violent reaction on Monday with a large grain of salt.
Still, as President Donald Trump said, DeepSeek is a wake-up call for U.S. companies to reassert their dominance over AI.
China’s release of DeepSeek is a modern day Sputnik moment. Sputnik was a wake-up call that we were losing the space race to the Soviet Union… and spurred us to be the first country to send a man to the moon a decade later.
This is a race the U.S. simply cannot lose.
And it’s an opportunity investors should not miss.
That’s why Louis, Luke, and Eric created the AI Revolution Portfolio, which you can learn more about here.
Don’t let fear of this week’s events scare you into a corner. Embrace this moment. It’s chaotic, yes, but therein lies the opportunity to grow your wealth.
To life, liberty, and pursuit of wealth.
P.S. Out of curiosity, I downloaded DeepSeek to see what all of the fuss was about. As I mentioned earlier in the week, I asked it some questions about Mao and Tiananmen Square, which it refused to answer. No surprises there. Of course, I wasn’t alone in this interest. By Monday night, the app had been downloaded about 2.6 million times across the Apple App Store and Google Play Store.
So tell me, did you also download the app? Would you trust it? And do you plan to invest in this momentous moment? Click here to take a quick poll.
I’ll report results next week.
Transcript
Luis Hernandez: Hi everyone. I’m Luis Hernandez, editor in chief at InvestorPlace. The markets were rocked Monday when a Chinese AI lab released a new language model named DeepSeek R1. Experts noted that the performance of the model is as good as anything they’ve seen from any other provider. But what’s really striking isn’t just the results, but the claims about the cost of its development. DeepSeek claims that its breakthrough model costs less than $6 million to train using inferior AI chips.
OpenAI’s GPT model costs more than $100 million to train. Almost immediately, DeepSeek became the most downloaded free app in the US on Apple’s app store, knocking ChatGPT down to second. Aside from the cheaper cost to train the model, DeepSeek is free for personal use and cheap for businesses. And because DeepSeek is an open-source platform, researchers and developers worldwide are rushing to get access and build on its capabilities. Now, some hard questions are being asked about tech stocks and companies that have been writing the AI megatrend to big profits so far, especially the Magnificent Seven.
The market is asking whether all the billions in spending planned by these companies is really necessary. No one bore the brunt harder than AI megatrend poster child NVIDIA, which dropped 17% on Monday, with other chip makers such as ASML and Broadcom also taking hits. And let’s not forget that all this happened in the shadow of the Trump administration’s announcement of the Stargate Project aimed at making the US the unrivaled world leader in AI. Noted Silicon Valley observer Marc Andreessen has called DeepSeek AI’s Sputnik moment.
For those who don’t remember, Sputnik was the satellite launched by the Soviet Union that kicked the space race into high gear. Are we looking at a similar race scenario for AI dominance? Today, we’re going to get some answers about what to make of this news and what implications it might have for your portfolio. I’m here with the three analysts who built the AI Revolution Portfolio. Eric Fry, Luke Lango, and Louis Navellier. If you don’t know the product, the AI Revolution Portfolio was built by these three editors to represent the best-in-class stocks for the AI revolution.
They focus on finding the AI stocks that could go on to disrupt entire industries and, as a result, go up more than any stock over the next 12 to 36 months. The AI Revolution Portfolio returned more than 21% last year, and every stock in the portfolio is focused on the company’s best position to take advantage of the AI megatrend. Thanks for being here, guys. I know it’s a short notice to call all you, all of you here, but I appreciate your availability.
Eric Fry: Good to be here.
Luis Hernandez: Eric, let’s start with you.
The three of you have been telling folks for a while that the next phase of the AI revolution was going to be about AI appliers, those who are using AI to expand profit margins rather than AI builders such as you get with NVIDIA and the other Magnificent Seven. Does all this sort of feed into that theory for you?
Eric Fry: I think it’s exactly right, Luis. I mean, obviously, yesterday’s announcement was a somewhat surprising one, and it was certainly a shock across the bow for hardware providers like NVIDIA. But it does… it is part of a theme and it’s also part of the long-term legacy of technological innovation. Technology, as it becomes… as it develops, as it becomes more ubiquitous, the price falls. This is a version of that.
Different innovators find ways to produce products at… more efficiently at better and better prices. And what was true of old technologies is also true of AI or appearing to be true anyway. I mean, we all have those examples. My parents bought a VCR in 1983. It was 800 bucks, so that’s almost $3,000 in today’s money. They didn’t stay at $800. They didn’t stay $3,000. So this announcement is unnerving for some industries. I mean, for some companies, companies like NVIDIA, it’s unnerving.
I don’t think it’s fatal by any means, but if you look at this canvas more broadly, as prices drop across the, we will call it the AI sphere, that’s going to promote its use, it’s going to promote ubiquity, it’s going to promote adoption, and that is a benefit in general to the companies that are applying artificial intelligence. So I don’t feel like this is… It’s a dramatic moment. I don’t feel like it’s a terrifying moment. It’s just a step along the way.
Luis Hernandez: Okay, great. Louis, going back to that comment about this being AI Sputnik moment, how do you think the administration is going to respond to this kind of news?
Louis Navellier: Well, they already have. They basically said it’s a wake-up call, and Silicon Valley started to scramble obviously yesterday, and I’m sure they’re going to come back with something bigger and better. I think we’re all shocked by the timing of this. While this broke on Sunday during the football playoffs, most traders on Wall Street are big sports fans, so guess what they were doing?
And it just went down in the aftermarket and opened up low. But I’m very, very suspicious of it. At least it’s out there. It can be tested, but why wouldn’t you want better AI, more powerful AI? So this narrative that we can use the old NVIDIA chips, we don’t need the new ones, that we don’t need extra power. DeepSeek says they use 29% less power.
Maybe they’re just not looking at certain things that other applications are, which might make some sense because you don’t want to run garbage in garbage out of your model. So I think it’s basically China’s way of messing with us. And, of course, you can’t download TikTok now because it’s in limbo, and so maybe China wants to use DeepSeek to get all our personal data because they can’t get it from TikTok now.
Luis Hernandez: Yeah, there’s certainly reason to be skeptical about claims made from China about various technologies because they’ve done that before. Luke-
Louis Navellier: Correct.
Luis Hernandez: … can you characterize market selloff as a big overreaction? Can you expand on that a little bit?
Luke Lango: Yes. We call it a big overreaction and a buying opportunity because similar to what Eric said but boiled down into what… There’s actually a name for it. It’s Jevons Paradox, which is the idea that if you decrease the cost of a certain resource, if that resource is in high demand, then what you’re going to do is dramatically increase the demand for that resource because now it’s accessible and everybody can afford it or can use it.
And that’s exactly what’s going on here. I think of the build-out of fiber optic network. Fiber optic cables in the 1990s is a very strong example of this. Before that, transmitting data over the internet was very slow and expensive. With fiber optics, it became fast and cheap, and, all of a sudden, the internet was beaming into everyone’s house, and that’s when everybody was using the internet, and that’s when the real internet boom started. It didn’t result in less spend on internet infrastructure.
It actually resulted in more spend on internet infrastructure because any decrease in unit pricing was offset by a larger increase in volume of usage. And so that’s exactly what I think is going to happen here, is there is that blowback where it’s like, “Oh no. All of a sudden, maybe we can’t charge a bajillion quadrillion bajillion dollars for one single NVIDIA GPU. Okay, sure.” But now people are going to buy a billion bajillion quadrillion quadrillion of them as opposed to one of them, right. So you’re going to go and get this offset and volume increase, and that’s… So the overall spending pie to me doesn’t go down.
The reaction suggested the overall spending pie goes down. I think that’s incorrect, and you’re seeing a rethink, a rational rethink of that today. There’s been a lot of commentary over the last 24 hours that kind of is very in line with what I just said, and you’re seeing a rational rethink in markets today. A lot of those names that were hit hard yesterday, are rebounding today, though not recouping all their losses. Definitely the beginning of a nice little rebound, rebounding up big technical support levels and a lot of those names as well too.
So that’s how I view it. I do think it’s a very real breakthrough. The cost claims, who the heck knows? Nobody can really verify that, but the actual technological algorithmic breakthrough that they had with the mixture of experts’ model, that’s legit. That’s pretty impressive that they were able to do that. So, to me, it just means more ubiquity and more usage and more application. So I actually think it’s a long-term positive, not a negative, as the market may have took it that first time.
Luis Hernandez: Hey, Eric, one of the concerns that you’ve been writing about is the sky-high valuations we’ve seen from so many stocks, especially the Magnificent Seven. I mean, is this kind of an opportunity for some repricing of all that kind of stuff?
Eric Fry: Yeah, I think bubbles have a way of finding a pin. I don’t think it’s a bubble exactly, but the valuations are high, and they’re high because for legitimate reason. These are world-dominated companies, and they remain so today. So my knock on them wasn’t really, “Oh gee, these things are a house of cards.” It was simply the law of large numbers.
When you get high valuations, in order to adjust to… in order to make that investment work, you need to have great things continuing to happen and you certainly can’t have any bad surprises. Whereas, if your valuations are more middling, the stakes aren’t as high. So we saw that play out yesterday, particularly with NVIDIA. High valuation, the news alarmed shareholders, stock tanked 20% or whatever. That’s the kind of thing that happens to a company that’s richly valued.
It doesn’t mean NVIDIA can’t recoup that loss. It just means that when you’re playing in names like that, you have to expect that any bit of bad news is going to be pretty harmful to their return profile. And so if you’re willing to stay with that, tolerate it, great. A lot of investors don’t like that kind of volatility, so you don’t want to play there.
Luis Hernandez: Yeah. Louis, I was thinking of you because, of course, when I came in Monday, literally one of the first things I saw from customer service was some customer had called in to say, “Should I sell my NVIDIA stock?” What would you say to that person since you hold NVIDIA in some of your portfolios?
Louis Navellier: Well, now that I hold, it’s my largest holding. No, it’s a stock that can change your life, and it’s honestly changed my life. I mean, it is… we’ve had it for five years, and this is our second time in it. So obviously, the capital gains consequences would be massive to sell it, and there’s no reason to sell it when a strong forecast in sales and earnings is getting more dominant.
I would add that NVIDIA, believe it or not, I know it’s bouncing really strongly today, did exhibit rail of strength yesterday on Monday, and we were monitoring the companies that build out our power grid and the data centers, and those actually got hit a lot harder. And that’s ridiculous because those are long-term contracts, and once they start to expand the power grid, they’re not going to change because of one Chinese app, and that might be more efficient than ChatGPT.
So NVIDIA was exhibiting row of strength, and I told my wife to load up on it, and she did. All her cash is out in NVIDIA as of Monday. So it’s very exciting, and we don’t get these kind of buying opportunities very often, but literally, a lot of the stuff’s got hit on Monday is going to be up 20 to 30% as the earnings come out.
Luis Hernandez: Now, Luke, it’s only Tuesday as we film this. So we saw the big dip on Monday, we saw some recovery for some stocks, like Louis just mentioned, on Tuesday. Do you think short term, we’re in for more volatility, or do you think this is going to play out over a longer period?
Luke Lango: Oh, I think the buying opportunity is [inaudible 00:13:29] the next few days. So short-term, big tech earnings. This model was the biggest slap in their face I have ever witnessed as a human being, right. I’ve never seen big tech so publicly embarrassed by a little Chinese startup. They are going to defend their turf on all those earning calls over the next two to three weeks. You best believe they’re going to come out swinging with everything to justify their massive CapEx, talk about all their advancements, and they’re getting close to AGI and why they’re better than DeepSeek [inaudible 00:14:08].
They’re going to be ready in their prepared remarks. They’re going to be ready for the Q&A because the analysts are going to grill them there, and big tech’s going to defend their turf very successfully. So that’s… you’re going to get a bounce on that because big tech’s going to defend the turf. I think Trump’s going to defend this turf because this was also a slap in the face to him. A week after, five days after he announces a 500 billion dollar initiative to build out AI data centers, all of a sudden, everyone on Wall Street’s questioning whether or not we need to build any more AI data centers, right.
It’s like, whoa. So now he’s got to go defend that. He’s going to defend that. So you’re going to get the Trump defense, you’re going to get the big tech defense, and then you’re just going to get a rational rethink where it’s like, “Oh yeah, maybe their claims aren’t as strong as they probably first said they were.” So I think between those three things, yeah, you’re going to get a very big balance in a lot of those names over the next two to three weeks. Where it gets murky is beyond that. After big tech defends its turf, after Trump defends the Project Stargate, et cetera, et cetera, what happens when OpenAI integrates mixture of experts techniques into its modeling?
Do they discover that maybe they don’t need as many? Who knows? I don’t know. That’s where it gets murky to me. Two to three weeks pretty clear. You’re going to get a very nice balance. And I agree with Louis. I think a lot of those stocks that got hammered yesterday, the power names, they got crushed. Constellation, Vistra, those are low-beta stocks that drop 25% in a day. That doesn’t happen. Those are going to bounce 20 to 40% in the next two to three weeks, in my opinion. I think a lot of those names are going to come back with a vengeance. Two to three months down the road, that’s where it’s a little murky, but two to three weeks, I see a very strong short-term balance.
Luis Hernandez: Bottom line, I think it’s pretty safe to say for the three of you, you’re still very bullish on the AI opportunity here, short-term and long-term, because of all the possibilities that can happen both with big tech and with opportunities for smaller companies now that we may have a cheaper version of AI available.
Luke Lango: I think to bring it back to our AI Revolution Portfolio, we talked, it was all about the application layer, right, the phase shift into applications. That’s what this is. That’s what I’m telling my subscribers is just that this really was the moment that we officially phase-shifted into the application layer. The breakthroughs prove that the ingenuity is going to be in software.
And now that this becomes a ubiquity, now that it becomes accessible, now that a lot of people can bootstrap models like this, you’re going to see the ingenuity happen at the software layer, and that’s where you’re going to see a lot of growth in the application stocks. So we talked about the Monday price action. Louis absolutely right. NVIDIA outperformed a lot of the big hardware stocks, but what was green on Monday? A lot of software names.
A lot of software stocks were green on Monday because it’s actually good for them. This is good for them. And so I think we’re now moving more firmly into that application layer. So I’m not going to pat ourselves in the back or toot our horn a little bit, but I do think it was very prescient to say a few months ago, “Hey, we are… we’re gearing up, or even a few weeks ago, we’re gearing up to move into the application layer of the AI boom because I think we really are in it now.”
Eric Fry: Yeah. What that means from a practical standpoint investing-wise or one of the things that it means is that the AI story has been somewhat monolithic for the last two years. There’s been sort of this big, “Okay, this is AI, and to buy AI, you have to buy these five names.”
Pick your terminology. When it becomes a software-centric opportunity like Luke is talking about or… and that’s a version of applied AI, now you’re talking about something that is heterogeneous and mold tentacles all over the place where AI can impact individual companies that are either producing the software or applying the software, and that’s literally every industry on the planet.
So, all of a sudden, every industry in the planet becomes an AI play if they are developing an advanced capability because of AI. So I think it becomes much more interesting now for investors than it was in the first phase.
Luis Hernandez: Terrific.
Louis Navellier: I would add that DeepSeek is open source, so in theory, a lot of the companies that are experimenting with it could have a DeepSeek button on their website. They want to see the DeepSeek AI solution. Of course, I’m sure ChatGPT would like to have a button there too. So this may be a start of the AI arms race, but they’re not going to stop development. It’s going to get bigger and bigger. Just look what Tesla is doing, mapping out all the roads with all their cars and trying to do self-driving based on all their cameras. The amount of power that takes is ridiculous.
So it’s not going to stop, but it’s healthy. Competition’s good. Obviously, China wants to embarrass the United States, wants to dominate another industry, but Trump has all these allies in Silicon Valley. They were all at his inauguration. He was defending them at Davos, yelling at Europe for fining them and messing with Apple for taxes and things. So he’s… it’s going to be an economic war with us in China and we’ll see if we can win. We’ve been winning before.
And we certainly got him outnumbered. So let’s just go have fun with this.
Luke Lango: And that’s why I think the spending pie goes up, not down. I mean, if anything, it’s like, wow, the race is on. The Sputnik moment that the race is on. So maybe you were saying we were spending dumbly before, that doesn’t mean we’re going to stop spending. It means we’re going to spend more and then be smarter at the engineering as well. We’re going to do everything. We’re going to throw the whole kitchen sink, maybe the whole house at this now, right.
It’s like there’s… I just think that I wouldn’t be surprised. I mean, maybe I’d be a little bit surprised, but I think it’s possible that Project Stargate becomes a trillion-dollar project now because it’s like we have to win. If China really is doing that, we have to win. This is the final race of all races. Whoever gets to AGI wins world forever and ever, right. So you have to win. There’s no other choice.
If more money’s not doing it, then throw more money at it even still. That’s the American way. Bigger, bigger, bigger, bigger, bigger. So I think we’re just going to spend way more money. I don’t see the pie going down at all and actually think it’s a long-term pause to begin for all AI stocks. So yeah, just to piggyback on what Louis said, making this kind of a US versus China national security thing.
Luis Hernandez: Okay, thanks again for your time, gentlemen. Folks, these three analysts have been telling their followers that the next phase of AI is going to be the culmination of everything before it. It’s going to affect every aspect of society in ways we couldn’t imagine just two years ago. We’ll keep you up to date on DeepSeek and all the other important AI news in the weekly updates to our AI Revolution Portfolio service, as well as regular updates on the stocks in the portfolio, the best of the best in AI.
Just a little over a month ago, our analysts added seven stocks to the portfolio, and as I record this, they’re all still below the buy-up to prices, so there’s still a chance to get into your favorite stocks for 2025. Make no mistake, folks. Anyone who misses this opportunity to invest in the best AI stocks now could end up missing their financial goals and jeopardizing their futures. You can click on the links below this video to see a special offer so you can follow along with our expert picks in the AI Revolution Portfolio. Thanks again for your attention.