Today, I want share a quick thought on Artificial Intelligence, in particular, the Chinese startup DeepSeek which was in the news this week.
On Monday, tech stocks tanked on fears about Chinese AI startup DeepSeek which managed to create AI technology at a fraction of the price of all the other major AI players, which would hurt their business.
In response to this news, Nvidia shares plunged 17%, erasing $589 billion from the company’s market capitalization which was the biggest drop in US stock-market history. The Nasdaq 100 lost almost $1 trillion in value on this news.
These developments illustrate a broader point, which is important. For the past 10 or 15 years some novice investors have concentrated their investments in the S&P 500, and in particular the large tech stocks, and ignored all the risk associated with having this concentrated position. What happened over the weekend was really one big story: a company implementing a new technology could change the whole dynamics of the market. As I already mentioned, Nvidia, which was the stock market darling for years, wiped out a meaningful amount of it’s value in just a few hours.
This is a reminder that things can change on a dime. That’s why diversification is so important, and hopefully this illustrates the point to investors.
Unfortunately, it’s very difficult for people to change. It’s just the way the world works. These events will scare people for a little bit, then they’ll go back to finding the next hot stock and they’ll concentrate their investments there. It’s very difficult to change human psychology. However, I do recommend that you embrace broad market diversification within your own portfolio to ensure that you will be able to achieve your goals and avoid getting wiped out.