AI's unprecedented opportunity
Markets were shaken on Monday last week with the revelation that a Chinese startup, called DeepSeek, had developed a functional Artificial Intelligence (AI) product to rival currently available, leading American AI models, and done so at a claimed small fraction of the cost.
The combination of the high performance of the Chinese DeepSeek product, along with claims by the company the model had been trained at much lower total investment, caused investors to question the lofty valuation of the AI market sector in the United States. This sector, which includes top performing stocks such as NVidia, Microsoft, Broadcom, Google and other "magnificent seven" technology companies, is priced for perfection and any narrative throwing doubt on the AI narrative has the capacity to disrupt markets.
While industry analysts and technology experts have been impressed with DeepSeek's learning and performance, there was some skepticism the claimed training cost of the AI model was accurate, and inclusive of all the development costs associated with building and running the critical semi-conductor chips and hardware to scale the product.
I am not going to pretend to be an expert on AI technology. Like everyone else, I eagerly await the promise of an intuitive AI, which delivers true human-like interaction and reasoning ability. Thus far I have not been overly impressed with the large language AI models I have interacted with, but I know many others feel differently.
My standard test question when interacting with an AI chatbot is: "Where should I go on vacation?" -- as I believe this question requires a certain level of intuition and inherent curiosity to answer effectively.
When I ask this question to Chat GPT, the leading free American AI chatbot, and now DeepSeek R3, the leading Chinese version, both answers are similar. The chatbots list so many potential vacation options it practically provides no answer at all, for the most part just naming the top travel destinations on the planet, and neither model asks me what I want to spend first before answering, which is clearly how a human would conduct the same conversation.
Which is why I find large language AI products to be just sort of "meh" at this point. It's still clear when I'm interacting with a chatbot that I am interacting with an AI, as the output is still not very "human." This is probably the reason so many students have been sanctioned for trying to use AI to write term papers. It's still very obvious at this point.
This being said, while I may not be overly moved by AI right now, I also believe this technology is going to change everything about being human on planet earth, and it won't take long.
My best analogy on where I feel this technology is right now: compared to the internet, I think it's right about the stage where we no longer had to dial in, listening to the garbled computer talk, to get online. Most everyone over the age of 40 knows what I am talking about; anyone younger is likely just blank stares at this comment.
We knew while listening to the dial-up garble sounds this internet thing was going to change everything, but I think few of us could really understand just how profound this change was going to be. After only 30 years the internet has impacted almost every facet of being human, so shall it be with AI.
Which is why I have a hard time believing a Chinese startup with bold claims of unusual cost structures is about to upend the whole subject. I certainly like the competition and innovation, but does this Chinese success change the global narrative? That's probably a bit of a stretch.
When a sector or market is priced for perfection, volatility is the inevitable result as no tree grows straight to the sky. The winners and losers in AI may or may not be known at this stage, but the one thing I can be certain of is the opportunity presented by Artificial Intelligence may be unrivaled in all of human history. It's a fun time to be on the earth.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Stock investing includes risks, including fluctuating prices and loss of principal. No investment strategy can guarantee a profit or preserve against loss. Past performance is not a guarantee of future results. Marc Ruiz is a wealth advisor and partner with Oak Partners and registered representative of LPL Financial. Contact Marc at marc.ruiz@oakpartners.com. Securities offered through LPL Financial, member FINRA/SIPC.
