Free Weekly Email 1.28.25
Why DeepSeek Tanked US Tech Stocks
On Monday, January 20, 2025, the AI industry witnessed a seismic shift with the release of DeepSeek's new open-source model, R1. It took a week, but US tech stocks are now repricing in light of what is being reported as a major breakthrough on performance and cost-efficiency. This Chinese company's latest large language model (LLM) has reportedly outperformed OpenAI's leading model across multiple benchmarks, achieving this at a fraction of the cost. This revelation has sent shockwaves through Silicon Valley, causing a significant drop in US tech stocks as investors reassess the massive investments in data centers, particularly those utilizing Nvidia GPUs.
I do not pretend to know whether the Chinese claims are accurate. I do know that the bubble in AI stocks was looking for a pin. Time will tell if this was it.
I am focusing on the fact that uranium and nuclear power stocks took a big hit on this news. AI has been hyped as energy-intensive, and atomic power has become a popular theme to take advantage of this trend. When AI was hit yesterday, uranium stocks fell, as people assumed that if less power would be needed due to this new open-source model, then less uranium would be required.
The problem with this thinking is that the constituents of a uranium bull market had nothing to do with AI energy needs. Around 60 reactors are already under construction just for everyday electricity needs. Any additional demand created by AI would have made the already sizeable current uranium supply deficit even worse.
A commenter on X pointed this out.
This is why one must have a thesis for owning an investment. When the uranium stocks fell today, I bought them. I was buying because I was convinced of the uranium bull market. That conviction comes from knowing the uranium market through deep research and what drives it.
As the uranium market is small, it is dominated by retail investors. Retail investors are chasing the shiny object and are dominated by emotion. When prices drop due to irrational reactions to a news item, the investor with conviction must be a buyer. This is the essence of buying low and how long-term wealth is created. Easy to understand yet hard to do.
Time will tell if buying from panic retail investors was wise or not.
Value investing: "The reports of my death have been greatly exaggerated."
In November 2020, the announcement of a successful Pfizer-BioNTech Covid-19 vaccine candidate results triggered the long-awaited comeback of the value factor. Since then, value has been mainly on the rise. Here, in ten graphs, we review the developments since the announcement as well as some general insights on value investing.
This is another example of skating to where the puck is going.
The King of the 21st Century Wears a Golden Crown
Once again, gold has taken the crown as the best-performing asset in the 21st century. From the turn of the century to year-end 2024, the S&P 500® recorded an annualized return of 7.7%, while the S&P GSCI Gold recorded 8.5% annually. While besting stocks for a quarter century, gold is still considered a safe-haven asset, especially during periods of economic uncertainty. However, 2024 highlighted how gold can also perform well during bull markets. The S&P GSCI Gold and S&P 500 posted supersized returns for the year, topping 26.6% and 25%, respectively.
Most people have no idea that gold has performed better than the S&P. Can it continue? I think over the next decade, gold will outperform.
Argentina Books Biggest Energy Trade Surplus in 18 Years
Argentina’s energy trade surplus surged to its highest level in 18 years in 2024 as exports jumped by 22.3% while imports slumped by 49.4%, data from the Argentinian government showed.
The biggest energy surplus in nearly two decades is a win for the first year in office of President Javier Milei, who has promised a domestic energy revolution to boost Argentina’s economy, exports, and foreign exchange revenues and reserves.
The government said Argentina’s energy trade surplus rose to $5.668 billion last year thanks to increasing exports and plunging imports.
I am still bullish on Argentina and several other countries in South America.
Uh oh! Cramer Says to Buy Bitcoin
Cramer has always been a reverse barometer, so do the opposite of what he suggests. If the bubble pops, Bitcoin will likely go down along with many other assets.
That is it for this week.
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Regards,
John Polomny
I couldn’t resist either. I bought more Cameco stock. Around a 20% discount from Fridays close.
Why that stock would go down more than Nvidia, or at all for that matter, didn’t make any sense to me.