Macro Monday: Chinese AI DeepSeek Scares U.S. Market ft. Andreas Steno & Mikkel Rosenvold
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Hello out there, everyone, and welcome to this week's edition of Macro Mondays. My name is Mikkel Rosenwald, and as usually, I'm joined by my co-host and partner in crime, Andreas Deno. What a Monday, Andreas. How's your day been? You know, when I woke up this morning, I was about to hang myself, honestly. It was such an open to basically the Nasdaq futures market and

You know, a couple of hours later, I'm starting to sort of grasp what this story is all about. And I'm a little bit more comfortable now. Overall, this DeepSea NVIDIA story is incredibly interesting also from a macro perspective. But what's a little bit amusing is that right about everything that we know right now, we also knew on Friday.

So, you know, something happened over this weekend. Maybe people actually got the time to read through the research paper on DeepSeek, you know, because we had internal discussions on the topic in our fund on Friday. And, you know, it was a big thing, but we were like, okay,

We were like, you know, let's address this when it becomes relevant. And oh boy, it's relevant now. So yeah, it's been a crazy day. You can't ignore that. We're looking at a route in tech stocks, obviously the Nasdaq down over 3%, especially both Nvidia and Meta, Alphabet, all of them taking quite the beating. So Andres, you just recorded a flash update with our great colleague, Alex. It should be out in a few hours on the pro macro side.

So for a much deeper dive also into some of the specifics of DeepSeek, you can go have a look at that. I'm really looking forward to that. But we'll try and cover some of the macro aspects of this and what to make going forward here. So Andreas, just to sum up for those who've been living under a rock so far today or maybe just getting up a little late here, what's the story? So DeepSeek, a Chinese AI company,

um yeah released recently um i think the research paper was out wednesday last week um all of a sudden pulled the rock from under the technology space especially the semiconductor space in the us and in taiwan this morning and i guess the short version of a much longer story is that deep seek is incredibly more efficient

than OpenAI, for example, right? So look at it this way. It delivers, say, 80%, 90% of what JetGBT does at a much, much lower level of computational power. And is that a big thing? Well, you know, initially, yes, because obviously from a hardware perspective, right, if you need fewer GPUs to run more models, right,

That could be a short-term issue for NVIDIA, right? And we obviously know that it is priced to some sort of perfection now, whatever you call it. We have expectations of a doubling of the top line this year and probably around 80% on top of that next year. At least we had those expectations before today. And for a stock that is so...

dependent on its growth trajectory, even one or two quarters with disappointments will probably be enough to alter the trend substantially. Having said that, I guess the more medium-term story is very compelling here as well, because if DeepSeq and the technology behind it is indeed a game changer, and most people I talk to think that it is,

It is also a game changer for medium-term inflation. It is a game changer for medium-term demand for semiconductors. It's a game changer for the entry barriers for large language models. You know, it's a game changer for right about everything. And it all points in the direction of us reaching some sort of singularity earlier than expected.

And possibly also electricity demand. Yeah, it's a good point, Michael, because if you look at nuclear stocks today and utilities, they're not doing well because this obvious link between, okay, we need to use much more power, we need to have small modular reactors close to data centers, that story is also sidelined to some extent by this story today. Hi, Raoul here.

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But I'd like to show you a meme that I found early this morning. I love these build shot memes. Yeah, yeah, yeah. You know, I love them as well. And I think this take is right. Yeah. So, you know, and as per usual, these build shots, right? They're taking it to sort of the edge of what's fair, right? Yeah, yeah. The point here is a lot of people talk about, okay, this is a problem for NVIDIA.

this quarter next um because the big clients microsoft alphabet etc uh will not buy as many gpus as they can see that they can basically thrive with fewer gpus etc right um i think there's some merit to that story but the bigger story is that entry barriers will be lowered substantially and this is by the way a story that we always see with software right and now china is in

Involving China in right about anything means that it's a race to zero, right? And costs. And I think this is a classic example of the same, right? And if you lower the entry barriers, you lower the costs of producing basically by increasing the efficiency, the demand for the hardware underlying it will actually increase.

Not decrease. Exactly. That's the endgame, in my opinion. What happens in between that endgame and now is probably that NVIDIA will take a drop and then reaccelerate. Timing-wise, I think it's tricky to find that bottom right now, even though it seems like we've, you know, at least judging from the price action, it seems like at least the first wave is over here. But let's see.

Yeah. I always try to move to the left of these build shots. Keep to the simple analysis. Don't fuck this up. I think that's also what we're going to do today. So extremely interesting address here.

I just want to touch on the fact that DeepSeek is coming out of China because I think that's very, very relevant as well. This is in many media, many analysts are pointing to this as a Sputnik moment. Let's just remember the Sputnik was the first satellite to orbit the Earth. Earth was launched by the Russians, by the Soviet Union, and it caused the US to invest massively in the space race. If this is viewed as a Sputnik moment, then...

this should provoke even larger investments into AI from within the US, from the US government as well. And I think that might very well be the case because remember this AI tech is obviously it's important for the tech sector, but it's equally important for the defense industries of both China and the US. So if this is viewed as, wow, the Chinese are leapfrogging us on AI, then we simply have to invest more into this. So that's one angle of it. So Andreas,

I wanted to add one thing to this. It's not only Chinese, it's a spin out of a Chinese hedge fund. And, you know, I've had long discussions with hedge fund counterparts today, whether to actually trust this story fully, because, you know,

Let's assume that HiFly is the hedge fund behind this, ran some sort of negative or bearish position on NVIDIA before throwing this news out there. It's a very, very weird incentive structure to have an AI company and a hedge fund at the same time. At least you need to be aware of that incentive structure when you read this.

So I just wanted to get that out there because it's not irrelevant to know at least. I cannot prove anything. I don't have any information on it. Just want to stress that. I just look at the incentive structure and I find it fishy. Let me put it like that.

I agree completely. There are some other points too. Obviously, we've all seen the tweets of DeepSeek refusing to answer questions both related to whether Xi Jinping is related to Winnie the Pooh and all sorts of sensitive Chinese questions. Of course, it refuses to answer these. There's also a point to this being sort of a data grab. I think that's an interesting example because

but at the end of the day one thing is hardware one thing software is the data that you need to to continue to work on these models and if you have the best model uh that's where people are going to go with all the data with all their prompts and that is going to be a competitive factor as well so so to to put out a a model that people perceive as being better than open ai's model or claude or whatever you have and might be very very powerful as well so uh so let's let's

Let's try and understand some of the market logics here, because, I mean, it shouldn't be a surprise that we're seeing innovation in AI space. Why such a heavy drop today? I think, you know, looking at NVIDIA first, right, I think it's clear that it's an equity case that needs growth quarter by quarter. And even though the medium-term prospects are pretty solid on the back of this,

it's an issue for a growth case to have one or two disappointing quarters in a row. So should we get that? Get out, right? That's kind of the short version of why it matters so much. The market is incredibly bad at looking beyond what's in the next quarter or two. And even though we can sit here and agree that the medium term is probably even better than a week ago, that will be tricky to navigate until the growth story is back again.

quarter to quarter. So that's why it matters a whole lot. Then, you know, looking at the spillovers to US fixed income to the US dollar, I find the ramifications maybe even more interesting from a macro perspective because, you know, all trend lines are broken now in the strong dollar. And it's a very easy sell to say that this is a dollar negative story.

Because flow-wise, the dollar has been thriving on the back of equity flows pointing only in one direction, and that's basically towards Silicon Valley, right? And if we get some sort of pause in that story, it will allow the positioning to unwind quickly in the dollar. I think dollar-yen looks incredibly compelling as a macro case today.

The Japanese yen obviously being a risk-off currency as well, but also given that dollar-yen trades maybe 10 index points or, sorry, 10 big figures,

above its fair value when you look at interest rate spreads between the US and Japan. So I think that's a compelling story. I think we kind of needed a trigger to really sell the dollar in big size. And maybe we've gotten that exact trigger today, obviously also related to lower bond yields in the US.

Very interesting. I was a bit surprised just to round off this topic, Andreas, that it didn't take more than a storyline like this to rattle all this tech investment. Is this a case of all these tech stocks being priced in at such multiples at the

Which, as you mentioned, the pricing in almost exponential growth that it takes so little to throw off the curve, that makes investors more nervous. Is that what we're looking at or am I overreading this? No, no. I think that's exactly what we're looking at. It was the same thing that happened to Tesla back in 22, 23.

You simply need to deliver on the priced-in growth, also near-term, to justify the multiples. And that's why we'll have a rocky road ahead. We've been banging the drum on buying equal-weight S&P in this Trump era rather than NASDAQ. And so far, we've been 100% right on that. It is incredibly difficult to time the price action in NASDAQ, both on the up and on the down.

I'm not even sure that I really want to try because, you know, the market has been incredibly schizophrenic since the December presser from Powell. You know, we've had these nasty drawdowns in NASDAQ and then all of a sudden we're back. I like not to be involved when the market is behaving like that. I consider it a better choice to be in the equal weight S&P. And it's been outperforming NASDAQ for a couple of months in a row now.

Go to the left side of the bill chart. That's... Yeah, maybe. So, Andreas, finally a week where Trump isn't the top topic here, although I just want to touch upon the whole club. Maybe he'll end up being the center of attention in this AI case as well, because we obviously know that the Stargate project was launched, was it last Wednesday as well, right? It was more or less around the same timing of the research paper from DeepSeek,

it sounded like Trump was personally vested in that Stargate story as well. Then we had Elon going out on X, trying to question whether they had the financing and all that. It's obviously something that's on the radar in this administration. And I think it was as late as last week, we talked about the prospects of doing a tech deal.

between US and China. Not necessarily sure that that tech deal has become a whole lot easier after this. And maybe Trump is one or two hours away from tweeting something about this. That would be a major game changer again, yeah. Yeah, exactly. You know, it's just, he probably needs to comment on this. I would go as far as saying, yeah. Absolutely. And it seems like, while it seems like Elon is

sliding a little bit in the internal hierarchy of the Trump administration. Why don't you just buy this whole deep-seek thing and get himself right back in the front seat of the Trump car? I don't know. Trump did have a major win over this weekend, the standoff with Colombia. I think this was a demonstration to the analysis that we've laid out over the past months, Andreas, that of course Trump is serious about tariffs,

but mostly for the point of being serious. Like people need to take this serious as a threat. And the Colombian government absolutely did. So long story short, the Colombian government refused to accept or to allow a couple of planes full of illegal immigrants expelled from the US to land in Colombia. This infuriated Trump, who then retaliated with, I think it was 25% tariffs that would rise to 50% in a week.

And then within hours, the Colombian government folded, very much demonstrating, one, that this is a viable strategy for Trump to gain what he wants, at least short term. He's not building any long-term friendships here. And also, too, demonstrating that these suggested tariffs are

He has to do them very specifically on single countries, not entire regions or globally. That's where they're the most efficient because they hurt Colombia. They will hurt Colombia much more than they will hurt the US. And yeah, great effect out of that. We might see that weapon used even further down the road, perhaps not in China. It seems like China are slipping out of that one. But a big win for Trump, essentially, at least in the short term.

Yeah. But maybe, Mikkel, I don't know on the question on tariffs in China. He said as much last week that he kind of preferred not to use them, even on China, right? So if they do deals, he will not use them. The question is just how they handle this deep-seek stuff. Could be a game changer for those negotiations. But on the other hand, right, is deep-seek...

could that become too powerful for Xi, right? And, you know, that's another question that we cannot answer at this point. You know, he basically made a power grab on Alibaba in 21, I think it was, right? So, I mean, could this be something that is too powerful for Xi's taste as well? You don't really know that, right?

So lots of questions right now. Again, and I want to stress that we had a great discussion with our CTO, Alex Miele, on the technical ramifications of DeepSeek, why it matters for OpenAI, why it matters for NVIDIA, et cetera. And you can watch that in the pro macro session on Real Vision. It requires you becoming a member. Absolutely, you should do that. So Andreas, we try to sort of

tune out of all the current noise, all the Trump noise in this final part of the show. You had in your weekly Stable Signals post on Sunday, you had some very interesting indicators on the economic activity in the US. Could you just explain a little bit this chart on withheld taxes? I think it was very, very telling. Could you just give us some insight into that and what that means for positioning? Yeah, so the reason why, and we basically intend on doing that every week in this show, make it like trying to cut through all of the noise that's

to find bets that have strong embedded characteristics in a very noisy macro and geopolitical world as we have right now. And, you know, one of the things that I've noticed basically since, as you can see on the chart, November or thereabout, is that the amount of

taxes withheld on behalf of employees in the US is rising quite substantially. So why is that an important indicator for us live? Well, it's one of the time series components of our now costing model in the US, since it gives you a daily flavor of the labor market activity, basically, right?

And, you know, we had a stronger non-farm payrolls report than most people anticipated. The first one that was released this year. And I think the answer is found right here. You know, you cannot expect withheld taxes to pick up unless there's a pickup in hiring, right? Maybe if wages rise a lot, but we either need to see wage growth or hiring for these things.

withheld taxes to increase. It's as simple as that. So I think it's a pretty strong sign that we've actually seen a hiring pick up since the election. And again, something that, you know, it speaks against having a negative view on the U.S.,

from a fundamental macro perspective, right? We can have niche stories as this one on AI and semiconductors. But if you buy the equal weight S&P based on this, I think you're okay, right? Because it seems like there's momentum in labor markets and in the spending gauges and all that in the US still.

Very interesting. I just wanted to touch upon this. You're obviously contributing greatly to this. A number of flights pointing to great consumption also. Yeah. In my opinion, flight data is the best gauge of discretionary consumer spending. Because, and I think you'll agree, right, Mikkel, if you struggle to pay your bills...

you're not booking a flight to Japan as a tourist, right? You know, it's one of the easiest expenses to cut off your budget. For businesses as well, yeah. Yeah, also for businesses, right? It happens straight away in a downturn, right? And we see this flight data picking up again. So I think that's another strong sign that discretionary spending is actually on the up. And, you know, last week we went to the Middle East. I'm going to the US this week, Singapore soon, right? You know, so we're contributing, yes,

we'll have to ensure that our carbon emission is not too crazy, right, for our ESG reporting in the company, but anyway. That's done. ESG is done. At least in the US it seems to be done. It's certainly not done where we're from. I had a laugh when I saw Christine Lagarde

saying that maybe a lot of people will leave the US because of all of the turmoil created by Trump. And, you know, then I tweeted, well, at least a lot of ESG officials will be open to new work, right? Because it just seems like ESG is done, DEI is done, because Trump has basically told both private and public companies to get over with it, right? Stop it. But we are not there in Europe. And

Not even close. Let me put it like that.

No, one thing is Trump. Another thing is simply sort of the dynamic, the societal development. I think it's a topic that's getting a little less relevant right now. It's going to find a natural level, perhaps, of importance. So we're seeing all the major businesses scaling it down, major politicians scaling it down. As I mentioned before, I think the moment where Alexandria Ocasio-Cortez removed her pronouns from her ex-account, that was a very, very big moment for the anti-woke movement, obviously.

Okay, Andreas, a crazy day here. Any final thoughts for the show? Well, you know, I think you need to be very agile if you're involved in the semiconductor slash stack trade. I think there is merit to the story that we have here.

an issue for growth targets of hardware sales, say over the next one, two quarters based on this. Let's assume that you entered the C-level of either Microsoft, OpenAI, Alphabet, etc. Having received the news that they've more or less proven, they've basically proven that they can run large language models with less computational power in China.

I think the first thing I would demand as a board member would be to say, okay, we need to do that before we buy more GPUs, basically. Do that first. And then we can buy some more GPUs.

But by the end of the day, it is disinflationary because as an end consumer of chat GBT, I would also demand the price to drop now. Because more alternatives, less entry barriers, all of that. It's disinflationary. It's incredibly bullish for the demand for GPUs over time and will reach singularity before forecasted inflation.

one or two weeks ago. So, you know, I'm kind of torn between the very, very near term and the structural outlook here. So if you're one of those involved in markets with a long-term horizon, I think you should be happy about what happened today.

So, Andreas, finally, I just want to touch. We've had some audience questions here. As I was looking at things this morning, I was looking at our strategy portfolio, my own portfolio. I was thinking, oh, well, at least crypto is safe from this. Well, not. Not at all. Why does this affect crypto? How do you think this will affect crypto? It's a sentiment thing. It's a sentiment thing. I don't think there is...

To my knowledge, there is no crystal clear and direct links between the two stories. So I think it's more of a sentiment thing. And we've also seen some sort of consolidation later in the day here. So by the end of the day, not a biggie. I'll still be focused on the next moves from the Trump admin on this rather than this story.

Great stuff, Andreas. I think we will round it off at that. Thank you very much, all of you out there, for tuning into our Macro Monday show. It's a real pleasure to host these every week. Remember that you can check into an even deeper dive into the deep sea tech or case and what this means for tech. If you're a pro macro member, if you're not, you should try that out. Absolutely. It includes our shows with Roel as well as a lot of other great content there.

Thank you so much for joining, Andreas. We'll be back next week. Thank you all for looking in out there. Have a good one. This episode is sponsored by Token 2049. Join 15,000 attendees and over 200 exhibitors on April 30th to May 1st at Token 2049 Dubai, the premier crypto event of the year. Raoul Pal and over 200 leading voices in crypto will take the stage as Token 2049 takes over the majestic Medina Jumeirah in Dubai.

Be part of two days of unparalleled networking, groundbreaking insights, and truly immersive experiences you won't want to miss. With over 500 side events, Dubai will be the industry's focal point and the place to be for everyone in crypto this April. Grab your tickets at Dubai.Token2049.com with promo code REALVISION for an exclusive 10% off, only while tickets last.

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ConsenSys features exclusive networking lounges, expert-led sessions, and invaluable insights from top industry voices. Whether you're expanding your network, building your brand, or closing your next big deal, this is the event that moves markets. Visit coindesk.com forward slash ConsenSys dash HK to secure your spot and use Real Vision 15 for 15% off. Don't miss your chance to be part of the industry's defining moment.

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