I’d bet that you probably never heard of the Chinese AI venture DeepSeek before this week.

Wow, did that change on Monday!

There has already been a lot of commentary out there on what it may mean. And I think I have some particular insights on how to relate it to stocks.

But first, let’s start with a quick summary of the “news” about DeepSeek.

Separating News From Noise

On January 20, the same day as President Trump's inauguration, a Chinese AI start-up (founded by a Chinese hedge fund manager) released a new AI model called “R1”.

The model appears to line up competitively against existing leading AI models like ChatGPT. They claim they developed the model with an investment of only $6 million and that it uses 80% less compute resources (including power) than existing models.

If this is true, what does this mean for stocks?

If you believe that they have achieved models just as good at a fraction of the cost and resources, then it means that the massive investments made in AI by technology companies have been way overdone.

The hyperscalers like Alphabet, Meta and Microsoft have potentially spent hundreds of billions of dollars when they could have spent a fraction of that. Smaller competitors can do the same for much less and take market share.

Companies that have benefited from these investments — led by Nvidia – will see huge drop-offs in incremental demand as a result.

Additionally, companies that were expected to benefit from the growth of AI and data centers will likely see less growth. This includes companies like electricity generation companies and other companies building out data center infrastructure including construction, air conditioning, etc.

If these hundreds of billions of dollars of investment have been wasted, then it is a disaster for all of these companies.

The result was an astounding loss of over $1 TRILLION in market capitalization of these leading technology companies on January 27.

These are the most widely held stocks by regular investors as well as institutions.

If this is all true, it is an absolute disaster for the stock market and investors.

So, the big question is this: is it all true?

The honest answer is I don’t know. And anyone who tells you that they know with any certainty is lying to you.

This is not how this works.

I have seen similar situations over my 30-year career. During that time, I developed a process to figure out the probability that something like this is real.

Remember that in the markets, you can almost never know for certain. But you certainly can do the math to figure out relative probability.

The way I have successfully done this in the past is by asking ourselves some logical questions. Here are the questions I would ask in this particular situation…

Answer the Questions that Actually Matter

First question: Do we think that this relatively small Chinese startup figured something out that the largest and most sophisticated technology companies (spending hundreds of billions of dollars) haven’t figured out?

Answer: Absolutely NOT.

The DeepSeek model has been talked about for months, and a lot was known about their “new” method.

Can any logical person really think that these companies with hundreds of thousands of the smartest technology professionals on Earth had no clue? Seriously?

I think they were aware of these methods and were (are) working on them as well. This work will likely accelerate now.

And with their vast resources, they will take what DeepSeek has done and do it even better.

Next question: Do we think that DeepSeek was really able to build this model with $6 million dollars?

Answer: Again, NO.

Here’s what Elon Musk, the most successful technology entrepreneur of all time, had to say on the subject.

This was his response to an AI technology analyst who posted an interview from a leading AI entrepreneur last week that claimed that the Chinese company had access to much more technology than they let on.

To put this in context, fifty thousand Nvidia H100 chips at the list price of $25k each would cost $1.25 billion (with a “B”) — not $6 million.

There have also now been many knowledgeable technology experts who are claiming that the “cheap” DeepSeek model was trained on VERY expensive other models.

Imagine taking CliffsNotes on a sophisticated physics book. It only works because you have the expert analysis that costs a lot of money to do in the first place.

One of the folks who is putting forth this argument is David Sacks, President Trump’s “Crypto Czar,” who said there’s “substantial evidence” that DeepSeek was built on the data of others.

I know I’m not even close to an expert on this subject. These folks, though, are as smart and well-connected as it gets.

When I don’t know something, I look for what the smartest folks in the room think and listen to them.

Final question: Do we think it was a coincidence that this product was launched on the day of Trump’s inauguration?

Answer: Absolutely NOT.

Like every company in China, the company that has developed DeepSeek is ultimately controlled by the Chinese government. Don’t ever believe otherwise.

I think they wanted to make a big splash on Trump’s big day. It didn’t catch fire on that exact date, but it did a week later.

Also, remember that a Chinese hedge fund manager started this company.

Going out and shorting billions of dollars worth of these technology stocks and THEN releasing this “news” would have been one of the greatest trades of ALL-TIME.

I think there are powerful entities who were (are) highly motivated to make this look as bad as possible.

It’s impossible for ordinary folks — or even the most sophisticated investors — to gain absolute certainty in situations like these. But with a well-thought-out process, you can figure out the probability.

I think the probability is screaming that DeepSeek is a DEEP FAKE.

As a result, I think we are seeing one of the best buying opportunities in some of these stocks in the last five years.

So tune out the noise and take advantage. I will show you how to do just that in Monday’s Truth & Trends…

Stay tuned!