Nvidia is crashing. Sell, sell, sell!
Hey all you fellows up there on the 60th floor. Don’t jump. Listen to Mr. Rob Is Right, this is actually a beautiful day!
It’s a beautiful day because of free markets. It’s a beautiful day because a ton of future wealth is going to be created.
The NASDAQ crashed more than 3% because DeepSeek, a Chinese Company has figured out how to “do AI” using much less computing power. According to the financial news media, this means that there will be much less demand for chip manufacturers like Nvidia. Even more impressive, the API pricing for DeepSeek costs just $0.55 per million input tokens and $2.19 per million output tokens. Compare this to OpenAI’s API rates of $15 and $60 respectively and one can easily see why Nvidia tanked 17% yesterday.
There’s so much to feast on with yesterday’s development!
Let’s start with U.S. Government policy. There’s an old adage that never gets old. Necessity is the mother of invention. The U.S., playing outdated protectionist policy games, put export constraints on U.S. chips to China. So what did DeepSeek do, it figured out a way to re-engineer its platform such that it could run on “less chips,” and in the process got its chips to communicate with each more efficiently, vastly improving data transfer and memory saving functions. The result, much less chips and much less energy to run its systems. The so-called financial news experts are saying that Nvidia stock could drop 50%.
Isn’t it interesting how U.S. industrial policy put in place to “protect” Nvidia and chip makers actually had the exact opposite effect? Gee, who could have ever predicted such a thing! Who could have ever predicted that government meddling in free markets might not be such a good idea!
Meet Rob Smith. He’s just a poor country lawyer from the backwoods. Some say he’s meaner than a rattlesnake with very boorish manners, but they also say he’s a modern-day Nostradamus. He’s always right and can pretty much predict the future! In an August 1, 2022 Real Clear Markets article entitled The Mind-Blowing Stupidity Behind the $280 Billion ‘Chips for America Act,’ he stated: “[t]he government ignores the fact that individuals can look out for themselves and that markets work. Thus, it enacts legislation to fix a perceived problem, but the legislation does not fix the problem. It creates much bigger problems…..” He concludes this brilliant article by advising Washington policy makers that everyone would be better off if instead of spending $ 280 billion, the government spent ZERO DOLLARS!
You see folks in a world of global trade and free markets, your country does not have to develop a product for you to use it. In fact, the more worldwide competition and hands in the marketplace, the greater the likelihood of better and less expensive products being developed for your personal use. DeepSeek is a good thing. Global competition is a good thing. Yes, Nividia and a few other companies may lose a ton of present value; they will have to redeploy capital in a way that can make them more productive. This is always a good thing. Likely, everyone else is going to be a big winner. If DeepSeek is real, it will drive AI costs down dramatically, creating enhanced productivity and additional wealth for millions and millions of people worldwide. Productivity drives wealth and wealth begets more wealth and capital investment.
The Hippocratic oath for good economic policy is to do no harm. A mean and boorish backwoods country lawyer might express this another way: “Get the hell out of the way and let markets do their job you bunch of pointy headed #423x*%#*2s!!!