Think back to the 1940s when computers were enormous machines that filled entire buildings. These early computers used big glass tubes that broke easily and needed lots of power to run. Someone at IBM even thought only five computers would ever be needed worldwide! But in the 1950s, something amazing happened – tiny semiconductor chips were invented that made computers much smaller and better.
Today, we’re seeing a similar big change in artificial intelligence (AI). Until now, creating powerful AI programs like ChatGPT has been very expensive, and only the biggest tech companies could afford to do it. But recently, a company called DeepSeek has found a way to make AI much cheaper to build and run – just like how semiconductor chips made computers more affordable decades ago.
What does this mean for your investments?
In late 2022, ChatGPT created huge excitement about AI. Now, DeepSeek might be causing another big shift. They’ve found a way to build AI systems that cost 95% to 97% less than current methods.
If this news is accurate, it could change how AI is developed and used, making it available to many more companies. Some investors worry this might reduce the need for large computer centers and the power they use.
This news affected the stock market on January 27 – some technology company stocks dropped significantly, and the broader market declined too. To understand what this means for investors, let’s look at three important points.
1. AI companies have been leading the stock market
Technology companies, especially the “Magnificent 7” group, have been driving stock market gains recently. Some people have been concerned about whether this growth can continue and how it affects overall market health.
When big tech companies become very valuable, they can take up a large portion of investment portfolios. This means your investments might depend too heavily on just a few companies.
These market changes remind us that successful investing isn’t about picking a few hot stocks. Instead, it’s about building a diverse investment portfolio that matches your long-term financial goals, preferably with help from a financial advisor.
2. New technology creates growth over many years
When new technology arrives, people often expect too much too soon, but don’t realize how big the long-term impact will be. While there’s lots of excitement about AI now, we’re just beginning to see how it will change our economy and daily lives.
The current market reaction focuses on companies that make AI hardware. But we’re still in the early stages of seeing how businesses and people will actually use AI.
Sometimes, making something more efficient leads to people using more of it, not less. For example, when semiconductor chips made computers more efficient, they ended up being used in many more devices than anyone expected. Similarly, cheaper AI might create new uses that actually increase the need for computing power.
3. Stock prices are very high by historical standards
Right now, many stocks, especially AI-related ones, are very expensive compared to their historical prices. When stocks are this expensive, even small changes in company news can cause big price changes.
While high stock prices don’t tell us what will happen in the near future, they’re important to consider when deciding how to divide your investments among different types of assets.
The best approach is to focus on long-term growth with a well-balanced investment portfolio. Having different types of investments can help protect against short-term market swings while still benefiting from new technology and economic growth.
The bottom line? While AI technology news may cause short-term market changes, the real benefits happen over many years. Stay focused on your long-term investment plan.
