DeepSeek’s Impact on U.S. Stocks Remains Unclear, Says Conning’s Don Townswick
The emergence of Chinese AI startup DeepSeek, which promises more cost-effective and energy-efficient artificial intelligence solutions, has yet to be fully priced into U.S. equities.
That’s the view of Don Townswick, director of equity strategies at Conning Asset Management, which manages $170 billion in assets.
“If DeepSeek’s technology turns out to be overhyped or less effective than expected, the ‘Magnificent Seven’ stocks stand to benefit,” Townswick told MarketWatch.
However, if DeepSeek delivers on its promise of lower AI costs, it could open the door for a wider range of companies to integrate AI more easily into their operations. “That scenario could drive earnings growth beyond the current AI leaders, as more businesses leverage AI-driven efficiencies and productivity gains,” he added.
The AI Spending Surge
DeepSeek’s chatbot debut earlier this month sent shockwaves through Wall Street, triggering a historic $600 billion selloff in AI chip giant Nvidia (NVDA).
The event also raised concerns about the escalating capital expenditures on AI infrastructure by U.S. tech giants. Instead of scaling back, spending has only intensified.
Meta Platforms (META) CEO Mark Zuckerberg recently projected “hundreds of billions of dollars” in AI investment over the coming years, with $60 billion to $65 billion earmarked for this year alone. Meanwhile, Alphabet (GOOGL) announced plans for $75 billion in capital expenditures in 2025—exceeding Wall Street’s expectations. Microsoft (MSFT) reported a 95% jump in AI and cloud-related spending, reaching $22.6 billion in its fiscal second quarter.
“Investors are wondering: How much more capital needs to be poured into AI before spending starts to slow?” said Robert Pavlik, senior portfolio manager at Dakota Wealth Management. “When is enough, enough?”
While Nvidia shares rebounded on fresh AI spending commitments, a decline in Tesla (TSLA), Apple (AAPL), and Amazon (AMZN) stocks suggests concerns about President Donald Trump’s escalating trade war. The U.S. recently imposed new 10% tariffs on Chinese goods, while threats of 25% tariffs on Canada and Mexico have been delayed by a month.
Market Rotation and Growth Concerns
Despite heightened scrutiny of AI stocks, investors have started shifting focus toward other sectors.
“There has been a bit of a rotation,” said Garrett Melson, portfolio strategist at Natixis Investment Managers. “While tech has faced pressure, defensive and interest-rate-sensitive sectors have been gaining traction.”
Townswick remains cautious, noting that the “Magnificent Seven” stocks have seen their earnings growth slow from a peak of 61% in Q4 2023 to a projected 16%–18% by year-end. While still strong, this brings them closer to the broader S&P 500’s expected 12%–13% growth rate—potentially making their lofty valuations harder to justify.
Melson, however, remains optimistic.
“Despite the uncertainty surrounding DeepSeek and trade tensions, the market has proven remarkably resilient,” he said. “Even with recent volatility, stocks remain near all-time highs.”
