Summarize this content to 2000 words in 6 paragraphs in Arabic Good morning. On Monday, stocks fell on pessimism about DeepSeek’s impact on US tech companies. Today the vibe is more positive. Economist Olivier Blanchard declared Monday was the “largest positive one-day change in the present discounted value of total factor productivity growth in the history of the world”. We’re inclined to agree, and we write about this theme below. Email us with your dissent: [email protected] and [email protected] and semiconductorsWe argued yesterday that if DeepSeek shows competitive AI models can be built at a much lower cost than believed, we need to revise our view of the likely economic structure of what the artificial intelligence industry will be. Returns might be less concentrated, and more of the value created might be captured by consumers (“legit invigorating” OpenAI boss Sam Altman said of this week’s developments, coining a fine euphemism for a massive loss in personal net worth).That’s a point about the distribution of value. It leaves open the question of how much value is created. That, in turn, depends a lot on how the appearance of a radically lower-cost competitor will affect AI demand. If demand for that technology is very price elastic (shouldn’t it be?), that means the world will use way more of it than we thought it would before DeepSeek’s breakthrough.Consider yesterday’s vicious sell-off in electricity companies near data centre hotspots. You might read that as the market saying demand for AI will not be very price elastic: data centres won’t need as much power because demand for AI services won’t surge as it gets cheaper. But that’s not necessarily the message. Maybe the market is saying the electricity demand won’t be where we thought, that is, near a few huge proprietary data centres run by giant US tech companies. Instead, AI will be run on smaller data centres all over the place. It is interesting, in this context, that while Nvidia recovered sharply yesterday, the hardest hit utilities (Constellation, Vistra and NRG) did not.So what about semiconductors? There is an argument to be had about whether the DeepSeek breakthrough shows Nvidia is about to lose pricing power (the market has concluded, for now, it won’t). But there is another question about other semiconductor companies that make non-GPU chips that are nonetheless required in data centres: networking chips (Broadcom), memory chips (Micron), and power management chips (Monolithic). If demand for AI services is price elastic, these companies — which got hit hard this week — might continue to grow fast.Stacy Rasgon, semiconductor analyst at Bernstein, sums it up nicely:If we acknowledge that DeepSeek may have reduced costs of achieving equivalent model performance by, say, 10x, we also note that current model cost trajectories are increasing by about that much every year anyway (the infamous “scaling laws . . .”) which can’t continue forever. In that context, we NEED innovations like this . . . as semi analysts we are firm believers in the Jevons paradox (ie that efficiency gains generate a net increase in demand), and believe any new compute capacity unlocked is . . . likely to get absorbed due to usage and demandSemiconductor stocks are very volatile and highly cyclical, and some of them may be overvalued even after this week’s correction. But we don’t think the sector’s tremendous outperformance over the past 10 years is a fluke. The world is becoming more silicon intensive. And nothing about the DeepSeek news changes that.CopperMonday’s AI news didn’t just hit chipmakers, utilities and data centre infrastructure providers. Energy commodities and conductive metals fell too. Oil and nickel (a key ingredient in batteries) fell. Copper, which carries electricity into data centres, had a particularly steep decline:Copper prices are volatile. Recently, they have mostly vacillated on economic news out of China, the biggest copper consumer. September’s peak coincides with market excitement and later disappointment about Beijing’s stimulus, and December’s rise, which this week’s news has partially undone, was partly about the country hitting its 5 per cent growth target. Because of various issues in the copper market, investors tend to get the best return by owning the groups that mine it. Those companies’ shares had tracked China’s outlook, and took a spill this week, too:There has been a bull case for owning copper in recent years: copper wiring is crucial to the green transition and the AI push, yet bringing on new supply is cost and time-intensive. That should translate to high prices and strong returns in the short-term, and sustained long-term demand. In response, all but one of the big miners have spent more on copper mining over the past two years, but are expected to slow down in the next few years — potentially an attempt hit a balance that keeps prices high, but not so high as to destroy demand or bring more supply online:Has DeepSeek’s success diminished the bull? If AI is now more efficient, will there be less demand for data centres and therefore copper? Combined with the new US administration’s pushback against the green transition, the outlook for copper appears to be getting worse.But this all hinges on AI demand. As we wrote above, if AI is further commoditised, there is the chance then that there will be more data centres, just owned by different people and in different places. That would only help the case for copper: new data centres may not run on Nvidia and Broadcom chips any more or be concentrated in Washington state or Virginia, but they will need just as much copper wire.There is a lot we do not know about future supply and demand. Most of the copper miners do not disclose their spending on copper exploration. But Freeport-McMoRan does, and — while it is just pennies compared to their capex — it has risen fast, and may signal that other miners are looking to bring new supply online in the longer term, too:In the long run, the world is going to need more copper. But there is going to be a lot of price volatility along the way — even more than with semiconductors.(Reiter)One Good Read“Non!”
