AI’s Wild Week: What It Means for Investors and How Wall Street Is Placing Its Bets

KEY POINTS

• DeepSeek’s rise challenges Silicon Valley’s AI dominance by proving that advanced AI can be developed more cheaply and efficiently, raising concerns for established players like OpenAI and Nvidia.

• Investors are pouring billions into AI infrastructure, including data centers, cloud computing, and green energy, betting that AI's rapid expansion will drive long-term demand.

• The AI boom carries significant risks, mirroring past tech bubbles, meaning investors must carefully differentiate between sustainable growth opportunities and overhyped speculation.

👉 Bonus: Below you will find five ChatGPT prompts that you can use to develop your expertise in this area.

Artificial intelligence has just experienced one of its most dramatic weeks yet. A Chinese AI startup, DeepSeek, shook the tech world with a powerful and cost-efficient model, sending ripples through Silicon Valley and Wall Street. Nvidia, the dominant supplier of AI chips, saw its stock plummet by 17% in a day, while OpenAI—already a behemoth—secured a potential $40 billion funding round that could push its valuation to $300 billion.

For investors, this past week revealed both the immense potential and volatility of AI markets. The AI boom is proving to be a modern-day gold rush, with capital flooding into data centers, semiconductor firms, and AI software companies. But as history has shown, not every bet will pay off. The recent frenzy echoes previous bonanzas such as fiber-optic cable, which boomed in the 1990s, busted in the 2000s and ultimately paid out. Fracking for oil and natural gas went through a similar cycle over the past 15 years. Here’s what investors need to know about the shake-up in AI and where the smart money is flowing.

DeepSeek’s Disruptive Rise: A Game Changer for AI?

Until last week, DeepSeek was relatively unknown outside of tech circles. Now, it’s at the center of a geopolitical and investment storm. The Chinese firm has released AI models nearly as powerful as those from OpenAI and Google DeepMind—but at a fraction of the cost. What makes DeepSeek’s rise so shocking is that it operates under U.S. chip restrictions, which were expected to slow China’s AI progress.

DeepSeek’s approach—using open-source models and "distillation" (a technique that trains AI by learning from other models)—raises questions about the sustainability of expensive, closed-source AI development in Silicon Valley. If powerful AI models can be replicated and refined more cheaply, it could alter the economics of the industry and challenge firms that have spent billions developing proprietary AI.

Nvidia’s Shock Collapse: A Turning Point for AI Chips?

For the past two years, Nvidia has been the biggest winner in the AI boom serving as the backbone of AI development. That changed last week. Shares of Nvidia NVDA, which was the world’s most valuable company just a week earlier, plunged 17% Monday, as part of a market wipeout that erased some $1 trillion of stock value, as investors suddenly questioned whether demand for its expensive AI chips could be under threat.

The fear? If AI models can be built and trained using cheaper or more efficient methods—like those pioneered by DeepSeek—then demand for Nvidia’s cutting-edge chips may not grow as exponentially as expected. While Nvidia executives argue that overall AI demand will continue to rise, the company’s stock recovery has been sluggish, signaling investor uncertainty wondering whether Nvidia’s power as the computational arms dealer atop the AI boom has been diminished.

OpenAI’s $300 Billion Valuation: A Bold Bet on the Future

Amid the turbulence, OpenAI is doubling down on growth. The company is reportedly in talks for a $40 billion funding round, which could bring its valuation to an eye-watering $300 billion (in October, OpenAI was valued at $157 billion). SoftBank, the Japanese tech and investment conglomerate led by Masayoshi Son, is in talks to invest $15 billion to $25 billion in OpenAI, signaling strong confidence in OpenAI’s long-term strategy.

But OpenAI faces headwinds. If DeepSeek and others continue making advanced AI models widely available for free, it could undermine OpenAI’s ability to charge for its proprietary offerings. Sam Altman, OpenAI’s CEO, even hinted in a Reddit Q&A that his company might consider releasing its own AI models for free—a radical move that could upend the industry.

AI’s Modern Gold Rush: Who’s Investing and How, Risks and Lessons from Past Tech Booms

Despite its volatility, AI remains Wall Street’s hottest sector. Investors are pouring money into AI infrastructure, from cloud computing to energy. Here are some of the biggest bets being placed:

• Data Centers: Companies like Digital Realty and Blackstone-backed ventures are spending billions to expand AI-ready infrastructure.

• Private Equity and Hedge Funds: Firms such as Blue Owl Capital are funding large-scale AI projects, including a major data center project in Texas backed by OpenAI, Oracle, and SoftBank.

• AI Startups and Hyperscalers: CoreWeave, an Nvidia-affiliated data center firm, raised over $9 billion in private equity and loans last year and is now preparing for an IPO.

• Green Energy for AI: Meta (Facebook) has partnered with solar energy firms to power its AI data centers, signaling a major shift toward sustainable AI infrastructure.

While investors are rushing into AI, there are stark warnings from past tech cycles. The dot-com bubble, the fiber-optic boom of the 1990s, and the fracking frenzy of the 2010s all followed similar patterns: an initial wave of excitement, excessive capital inflows, and ultimately, a painful shakeout.

Catherine O’Donnell runs JPMorgan’s tech leveraged-finance effort in San Francisco. She also led the bank’s energy lending team during the rise of oil and natural-gas fracking. In some ways investing in tech companies is even more complex, she said. The key challenge for AI investors is distinguishing long-term winners from overhyped bets.

“You need to back the right companies because the disruption risk is much higher than in gas,” Catherine said. “There’s always something new coming out.”

5 PROMPTS THAT ATHLETES CAN USE TO DEVELOP AND BUILD EXPERTISE

• How can I, as an athlete, apply the principles of strategic investing to build a long-term financial legacy, considering the volatility seen in markets like AI and technology?

• What lessons can I, as an athlete, learn from past tech booms and busts (such as the AI market shift described in the article) to make smart business and investment decisions?

• How can I, as an athlete, leverage their personal brand and network to secure investment opportunities in emerging industries like AI, data infrastructure, and renewable energy?

• What are the key factors that differentiate successful investors from those who lose capital in speculative markets, and how can I, as an athlete, adopt these strategies?

• Given the rapid evolution of AI and its impact on industries, how can I future-proof their business ventures and investments to remain competitive and innovative?

👉 Check ChampionsChat GPT for your prompts.

The Road Ahead: Where Smart Money Is Going

Tech companies and data-center providers want city-sized amounts of power as soon as possible. That’s upending the business of utilities, power producers and grid planners, who had been living in a world of nearly flat electricity demand for roughly two decades.

Chinese AI company DeepSeek’s recent release of an AI model raised questions about just how much computing power and electricity will be needed for AI. DeepSeek appears to perform on par with a cutting-edge counterpart from OpenAI, but needed far less computing power to develop. Yet, it isn’t yet clear what that means for the AI energy outlook.

AI is still in its early innings, but a few key trends are emerging:

• Data is the New Oil: AI companies need vast amounts of computing power (at least that was the perception and assessment until DeepSeek came along), storage, and electricity. Investors are heavily backing AI infrastructure plays, particularly in data centers and energy.

• AI Applications Will Determine Long-Term Value: While OpenAI and DeepSeek dominate headlines, the real value may come from AI applications in industries like finance, healthcare, and manufacturing.

• The China Factor: DeepSeek’s emergence highlights that the AI race is global. With U.S.-China tensions over chip restrictions intensifying, geopolitical risks will shape investment strategies.

The AI industry is moving at breakneck speed, with fortunes made and lost in days. Last week was a reminder that while the AI boom is far from over, it won’t be a straight line up. Investors need to balance excitement with caution, focusing on infrastructure, sustainable growth, and companies with defensible competitive advantages.

The AI gold rush is here. But as history has shown, not every miner strikes gold.

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I really appreciate you reading my note today.

Have a great week,

Irg

Irg’s work is provided for informational purposes only and should not be construed as legal, business, investment, or tax advice. You should always do your own research and consult advisors on these subjects. This work may feature assets and entities in which the author has invested.

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