Monday Takeaways: Chinese AI Rocks Markets

|January 27, 2025
Flag of China on a processor, CPU Central processing Unit or GPU microchip on a motherboard.

While markets were celebrating American AI exceptionalism last week…

China just changed the game.

Their DeepSeek R1 isn’t just impressing Silicon Valley legends – it’s doing it at a fraction of the cost.

Add in this week’s loaded calendar:

  • Microsoft and Google earnings Tuesday
  • Fed decision Wednesday
  • Apple, Amazon, and Meta reporting Thursday

The market’s most crowded trades are suddenly looking shaky…

Let me show you why this isn’t a “buy the dip” opportunity… yet.

Tune in for your Monday Takeaways. Don’t miss what’s moving your money… NOW.

Click on the thumbnail below to watch.

Transcript

Hey everybody. Shah Gilani here with your Monday morning takeaways. I have many for you.

First and foremost from last week: stocks rose again.

We saw record highs and some impressive moves. We had broad market gains, including the S&P touching a record, Nasdaq 100 performing excellently, and even the Russell 2000 moving higher.

Much of that pointed to talk of broadening out – yes, investors are starting to pick up stocks besides the Magnificent Seven, even though most of them were doing fine. I’ll get to that.

So what’s going on here? It’s the Trump effect. The president came out with both figurative bazookas blazing a pathway for business.

There was wonderful talk of American exceptionalism looking at the tech sector, examining the mega-cap tech stocks – the market’s leadership group – and how much they’re spending on AI and the critical need for mega-spending on data centers. Part of that American exceptionalism was Trump convening three billionaires to discuss their Stargate, which is a $100 billion investment in data centers and AI-related spending. These three mega-investors are Sam Altman of OpenAI fame, Masa Son of SoftBank, and Larry Ellison of Oracle.

Yes, all three are in. But there was pushback from Elon Musk alone.

Elon essentially said they don’t have the money. Not only is it $100 billion, but Musk also talked about leveraging that up to a $500 billion investment. If they don’t have the money, how will they fund what amounts to a fund without money?

But it sounded good, and markets liked it. It was what Donald Trump wants everyone to recognize. He’s cheerleading the capital market and spending in AI because ultimately, it’s going to be about the United States and China in an arms race for AI supremacy.

That was last week. Stocks loved it. Let me show you some quick charts.

First, the S&P. Looking at this, it’s a beautiful trend. I’m going to show you a one-year chart. If you look at the two-year chart, what a nice rise. Look at these highs – really impressive.

S&P 500

Moving to the QQQ, the ETF that represents the Nasdaq 100, you can see it had a good week. We were in a bit of a downtrend, and suddenly it popped up. American exceptionalism at work.

Nasdaq QQQ

And even the Russell – I’ll show you the Russell via the Russell 2000 ETF, the IWM – even the Russell had a good week.

Russell

Then we had a weekend, and there was talk of President Trump proposing 25% tariffs on Colombia, which scared many folks. He’s actually going to implement significant measures, like imposing 25% tariffs, promising to increase those to 50% on anything entering the United States from Colombia. The Colombians pushed back. It’s about sending migrants who landed in the U.S. back on military jets to Colombia, and the Colombian president didn’t allow those military jets to land, sending them back to America. That caused the dispute.

There’s a lot of walking back now. Maybe Colombia will say they can work with us. Perhaps they have to work with us.

That concerned people, but what really shook them was Chinese exceptionalism. Their DeepSeek R1 version has exploded over the weekend. It’s the No. 1 downloaded app on Apple’s charts, and this Chinese DeepSeek AI tool impressed Marc Andreessen, arguably the most famous venture capitalist of all time. Andreessen, responsible for numerous Silicon Valley startups, said it was absolutely phenomenal and amazing.

What’s the big deal about DeepSeek? The problem we’re seeing is it costs significantly less to train its models than anything in the U.S., including what the mega-cap stocks are doing. When people realized they could do this much cheaper and potentially better than American companies, American companies this morning started getting hammered.

Here’s Meta: beautiful week, new high. Now here we are in the premarket, down 3%.

Meta

NVIDIA, the stock that everybody owns – and I mean that almost literally because it is the most widely held stock in the world – had a decent week. It didn’t quite reach a high, but it wasn’t bad.

Now you can see premarket it’s down almost 11.5%.

Nvidia

This is what’s happening this morning. Chinese AI exceptionalism is pounding mega-cap tech stocks.

Apple is down slightly, but the chart doesn’t look promising. The takeaway is there’s a lot of concentration in these big names. They are the ones that move markets higher.

Apple

That concentration means if they’re selling, stops are likely to be hit. People are likely to sell some of the ETFs that have many of these big mega-cap tech names.

What does that mean? It means you need to be careful because that kind of concentration will lead to selling, which will lead to individual names reaching support levels, breaking those, and stop orders getting hit. As some of those names continue to decline, if this indeed happens, there will be more selling of the ETFs, more selling of individual names, more stops being hit, and we could see a significant decline.

We’re only seeing it this morning. How the day opens and where we go today will be telling.

It’s going to be a challenging week because of earnings. On Tuesday after the close, we have Microsoft and Google. On Thursday, we have Apple, Amazon, and Meta. Expectations are high for all of them to report robust earnings.

If they miss, after the stocks have been hit and sold off more, here’s the takeaway: be careful out there.

We have the FOMC meeting Wednesday statement. I don’t expect much surprise there. They’ll likely stay the course, wanting to lower rates.

There’s only been an uptick in the bond market this morning because of a flight to quality. Treasury yields are slightly lower. Prices are slightly higher on that flight to quality as investors watch the carnage.

Yes, when NVIDIA is down almost 12%, I call that carnage. Looking at some of these other names getting beaten up, that’s carnage.

Many stocks are under pressure this morning.

So the takeaway: be careful out there. I wouldn’t rush to buy this dip because if the earnings aren’t good and the whole mega-cap tech sector declines, you’ll have an opportunity to buy them lower.

If you don’t own them and you’re on the sidelines, or if your stops get hit, I wouldn’t hurry to get back in.

We might have an opportunity to buy lower. Those are your takeaways for this week. Be careful out there. It’s going to be a tough week.

Catch you next week. Cheers.

Shah Gilani
Shah Gilani

Shah Gilani is the Chief Investment Strategist of Manward Press. Shah is a sought-after market commentator… a former hedge fund manager… and a veteran of the Chicago Board of Options Exchange. He ran the futures and options division at the largest retail bank in Britain… and called the implosion of U.S. financial markets (AND the mega bull run that followed). Now at the helm of Manward, Shah is focused tightly on one goal: To do his part to make subscribers wealthier, happier and more free.


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