The Mag5s (NVDA + its top 4 customers, i.e. Microsoft, Google, Amazon, Meta) have contributed approximately 700 points to the S&P 500 over the last 2 years. In other words, the S&P 500 excluding the Mag-5s would be 12% lower today. Nvidia alone has contributed 4% to the performance of the S&P 500. This is what we find to be the ‘American exceptionalism’ premium on the S&P 500. So anything that threatens Nvidia's business model - and the "American exceptionalism" theme in the market - is a catalyst for immediately investor panic.
Today's panic sell-off across the market, but especially in AI names, is focused on the view that China’s DeepSeek AI model rollouts show AI products can be created at a much cheaper cost than what the US hyperscalers are working on.
For those who missed it, late last week a set of new open-source AI models from Chinese company DeepSeek took the investment community (and Twitter/X) by storm. And according to the many hot takes we saw the implications range anywhere from “That's really interesting” to “This is the death-knell of the AI infrastructure complex as we know it.”
