Overreaction to Reality: Markets Rethink the Impact of DeepSeek

Tuesday appears to be a complete reversal compared to Monday’s trading, raising the question: Are investors accepting that it was all an overreaction and panic? We won’t have full answers until the tech giants report their earnings. This will shed more light on questions such as:

1. How quickly is profit growth in the tech sector slowing down?
2. Are companies overspending on AI, and is this capital expenditure paying off at all?
3. How do tech leaders perceive the threat from DeepSeek?

There are still more questions than answers regarding the global AI race, meaning any dip-buying may currently lack confidence. Tesla, Meta, and Microsoft will kick off the earnings reports for the “Magnificent Seven” on Wednesday. On Monday, there were concerns that this clever Chinese project, developed for a fraction of the costs of U.S. AI projects, would prove that the billions spent in the U.S. were wasted. However, upon further analysis, it appears that the project may not have been as cheaply executed as initially thought, and U.S. AI leaders started to express that they welcome the competition. The White House AI and crypto expert stated that U.S. AI companies may have become too complacent, but now they are on alert. AI companies’ stocks improved steadily throughout the day, and after a slow start, the rest of the market followed this trend. By market close, the overall distribution was positive, with about 5,160 advancing stocks and 4,370 declining ones. There were only 275 new 12-month highs, but the price action was better, despite the Russell 2000 index (IWM) lagging with a mere 0.12% increase. The “Magnificent Seven” index (MAGS) recovered by 3% and nearly closed the gap from Monday morning’s chart. The key takeaway is that the market is finding a way to present DeepSeek as a positive, rather than a catastrophe for the AI industry. A number of software companies, such as Salesforce (CRM) and Snowflake (SNOW), sharply increased their value, as cheaper AI is seen as a positive factor for those who use data rather than create large language models. The big question now is whether the earnings reports will further ease concerns about DeepSeek. This is a topic that will surely be addressed by all major tech companies — and they have likely already developed strategies to deal with it. In addition to the earnings reports on Wednesday, the Federal Reserve’s interest rate decision is also upcoming. So far, there have been few comments on this topic due to the dramas surrounding Trump and DeepSeek, but it still has the potential to shake up the market if Jerome Powell says anything inappropriate. Overall, I remain positive on stock picking and look forward to increased volatility as earnings reports approach.