by Portfolio Armor
The $16 Trillion Question
As of January 24, 2025, the combined market capitalization of Nvidia (NVDA) and the other major AI infrastructure companies was nearly $16 trillion.
That market cap is based on expected demand for hardware to fuel the AI boom. But what if all of that hardware won’t be needed? What if we can have AI without most of it? That’s the $16 trillion dollar question raised by the emergence of a Chinese AI startup called DeepSeek. They released their AI model this week, reportedly built with only $6 million in funding, and American tech luminaries like Marc Andreessen were blown away by it.
Two Possibilities Here
There are two possibilities here:
- DeepSeek really did manage to essentially replicate what Open AI has done with ChatGPT, without a $100 million or more worth of expensive equipment by companies like Nvidia.
- DeepSeek secretly is using that equipment, but can’t disclose it due to export restrictions.
If the answer is 2. than Friday’s price action will have been a mild hiccup in our tech bull market; if the answer is 1., then that bull market is over. Investors will begin to radically reprice Nvidia and other AI infrastructure companies, after dramatically lowering their capex expectations.
Investment Implications
If you are at all risk-averse, you should probably hedge. Here are a couple of inexpensive ways you can hedge Nvidia against a >20% drop.
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