The emergence of Chinese Artificial Intelligence (AI) DeepSeek in January 2025 marked a turning point for the U.S. tech sector. The launch of a more affordable model raised concerns among hardware companies and tech giants (Google, Meta, Amazon) that had made significant investments in AI. After the initial impact, the market stabilized, and U.S. stocks regained some value after Nvidia lost $600 billion in market capitalization in a single day. The competition between AI models from China and the U.S. highlights the strengths and weaknesses of both powers. China has increased its power generation capacity to meet the enormous demand for AI and has driven innovation in its labs, achieving algorithmic solutions that reduce computational requirements without sacrificing performance. According to Carlo Gioja, senior manager at Plenisfer Investments, Chinese labs have demonstrated a surprisingly rapid capacity for adaptation and improvement, despite restrictions on access to advanced semiconductor technology. Meanwhile, the U.S. faces limitations in energy supply, making AI expansion more expensive. Gioja notes that shortly after Anthropic launched Opus 4.6, which shook the software market, Chinese Zhipu AI introduced a model with performance similar to industry leaders but with much lower inference costs. Additionally, after Google presented Genie 3 for global simulations, ByteDance responded with Seedance 2, capable of transforming a simple storyboard into a complete movie trailer, including sound and dialogue. The U.S. maintains an advantage in the development of advanced chips and in a highly competitive, profit-oriented business environment. This is reflected in market valuations: the MSCI China index trades at 12 times earnings, compared to 22 times for the S&P 500. Gioja points out that the Chinese market has not yet priced in even a partial success in the AI field. The highly anticipated innovation is DeepSeek V4, which will incorporate an innovative architecture with native memory, allowing it to remember preferences and previous contexts in a more human-like manner. It is expected to surpass models like Claude and GPT in generating complex code and handling extensive contexts, and will be DeepSeek's first release with native capabilities to process and generate text, images, and video. The stock market will reassess the impact of this technology, although past experience suggests that extreme reactions can turn into buying opportunities. A Year of Volatility The arrival of DeepSeek not only affected chip manufacturers but also software companies, which have seen their products replaced by more accessible AI solutions. Massive investments from hyperscalers have been debated, especially amid uncertainty about their profitability and fears of a potential financial bubble in a context marked by geopolitical tensions. Despite a challenging year, Nvidia reports an annual decline of 11%, but has accumulated a 52% increase over the last 12 months. Broadcom is down 15% for the year, although its year-on-year growth is 75%. AMD is up 90% year-on-year, despite an 8% decline in the last quarter. Meanwhile, Super Micro Computer (SMCI) shows losses both for the year (-28%) and year-on-year (-38%). Source: estrategiasdeinversion.com