THE NEW AI REALITY

 For the past year, investors have rapidly bid up the market capitalization of companies with a stake in the AI gold rush, presuming that the massive capex required to build data centers and train new L.L.M.s would benefit the incumbent oligopoly.

Indeed, the $500 billion “Stargate” joint venture that Donald Trump announced last week with OpenAI, Oracle, and SoftBank – to build data centers and expand electricity generation capacity – is premised on the notion that winning the AI war will require investment on par with the Manhattan Project.

The majority of that investment was aimed at generating the massive amount of electricity needed to power the data centers that run AI. Bill Gates and Three Mile Island, and all that.

That was the prevailing conventional wisdom.

Then word spread that DeepSeek – a side project funded by a Chinese hedge fund – had created a model comparable to OpenAI’s GPT-4o for a fraction of the cost.

But, most critically, running DeepSeek requires a tenth of the computing power of ChatGPT, which is the awesome power that Nvidia specializes in providing.

DeepSeek’s chatbot quickly shot to No. 1 in Apple’s app store. Investors in a variety of technology stocks freaked out and ran for the exits. The world’s 500 richest people supposedly lost $108 billion of wealth on Monday.

And now, everything we assumed about AI may be wrong.

And that offers us a simple truth – one of Wall Street’s most powerful, yet least mentioned. Stocks have their sharpest drops from their highest peaks when investors and gurus only see upside.