The Kobeissi Letter

For some background, DeepSeek is a Chinese competitor to ChatGPT. It was reportedly developed in UNDER 2 months. In many categories, DeepSeek is actually outperforming ChatGPT. DeepSeek is now a top performer in AIME, MATH-500, and GPQA benchmarks compared to ChatGPT.

DeepSeek has officially become the #1 app in the App Store in BOTH the US and China. Less than 1 month ago, this app did not even make the top 100 list. Search interest in DeepSeek is now nearly TRIPLE the levels seen in ChatGPT and Gemini.

In a benchmarking test, AIME accuracy of DeepSeek was compared to ChatGPT. As seen below, int ~8,500 steps, DeepSeek is able to outperform ChatGPT's o1 model. Of course, competition is normal and should be expected. So, why are markets devasted by this development?

DeepSeek was developed for a FRACTION of the cost of ChatGPT. To train the model, it cost ~$5.8 million, according to DeepSeek. There is debate about the total cost to develop it. However, let's just assume it cost $2 BILLION to develop, or 350x their stated training cost.

Compare this to OpenAI which just raised $6.6 billion in their latest round ALONE. OpenAI has ~4,500 employees compared to just ~200 at DeepSeek, or ~22 TIMES more people. And, the chips used by DeepSeek are far less advanced. Markets can't figure out how they did this.

This morning, Nasdaq 100 futures fell nearly -1,100 POINTS, the biggest drop in over 2 years. Roughly 350,000 Nasdaq 100 futures contracts have been traded pre-market so far. This is TRIPLE the 30-day average for pre-market trade. Volume is very telling here.

So, why is Nvidia falling if Nvidia makes AI chips which will now be in even higher demand? Markets are concerned over DeepSeek's ability to develop STRONGER AI with WEAKER chips. Does this mean that AI hardware advancement is less necessary? We're skeptical on this front.

Last week, we posted the below alert for our premium members. We took more SHORTS as the S&P 500 hit 6120 and called for a drop. Now, those shorts are up +170 POINTS in hours. This market is VERY tradable. Access our alerts at the link below: http://thekobeissiletter.com/s...

It gets even better; DeepSeek is ~96% CHEAPER than ChatGPT. - Cost of OpenAI o1: $60.00 per 1M output tokens - Cost of DeepSeek R1: $2.19 per 1M output tokens DeepSeek R1 is 100% Opensource and a fraction of the cost of ChatGPT. Cheaper AND better is a lethal combo.

Still not convinced? As US stocks fall sharply, Chinese stocks are rising today. The Hong Kong 50 is up 1.6% while the Shanghai Composite is FLAT. This marks some of the strongest outperformance of Chinese to US stocks in over 2 years. China is stealing the spotlight.

This is particularly concerning as the semiconductor sector has become HUGE in the US. It now accounts for a record ~5% of the entire US market. This exceeds the previous peak posted at the 2000 Dot-Com Bubble by 1.2 percentage points. Semiconductor stocks are crashing today.

This also comes as President Trump announced the $500 BILLION Stargate project to develop AI. Meanwhile, Meta is investing $60 billion in a datacenter the size of Manhattan. DeepSeek has investors questioning the development costs of ANYTHING related to AI this morning.

Is today's crash in stocks a buying opportunity or the start of another major bear market in the US? As volatility spikes, we are trading the swings in the market. Subscribe now at the link below to access our premium analysis and alerts: http://thekobeissiletter.com/s...

Over the last few days, the DeepSeek news story count has exceeded 1,700. As seen in the chart below, news and search interest in DeepSeek has gone parabolic this weekend. What will US big tech do now? Follow us @KobeissiLetter for real time analysis as this develops.