Speaker 1: The release of a high-performing Chinese rival to Chad GPT has sent shockwaves through the global tech sector and caused US tech stocks to fall. The sudden emergence of DeepSeek comes on the heels of Donald Trump's $5 billion investment in artificial intelligence announced last week. For more on this, I'm joined from London by the Head of Financial Analysis at AJ Bell, Danny Hewson. Danny, great to have you on the program once again. But can you first explain to us how DeepSeek's launch spooked the markets and effectively saw tech stocks plunge, particularly NVIDIA, losing half a trillion dollars in value?

Speaker 2: Yeah, absolutely. I heard it described brilliantly. So it's like all of these big US companies have been told that they have to buy a Ferrari to power the engine for AI. And suddenly a Chinese company comes along and uses a lawnmower to power things. So effectively, huge question. It's about whether or not all of these companies have spent hundreds of millions of dollars in order to buy these incredibly expensive chips to create these AI landscapes, whether or not that was required. Now, investors have been really seduced by the AI story over the last couple of years. They've been more than prepared to accept really high valuations for some of these companies because the growth trajectory has been tremendous. What happened yesterday? Well, it put the brakes on that growth trajectory. Although there are still some questions about exactly what DeepSeek is and how it came about.

Speaker 1: So for now, that lawnmower you're speaking about is, I think, on pause because the Chinese markets are closed for Lunar New Year holidays. So what might we expect to happen when they reopen?

Speaker 2: I think Chinese markets are going to be excited by what has happened here. Because China has... China has been really trying to make a shift from a high-growth, low-tech economy to a lower-growth, high-tech economy, trying to really make inroads in areas like AI and EVs, particularly at a time when US President Donald Trump and previously Joe Biden had really been trying to hamper things, to try and change the playing field so that the US came out on top. So I think we will expect to see a real pickup in excitement of the...

Speaker 1: But is it panic stations yet for NVIDIA? Because it has faced big falls in the past. So does it believe it can recover?

Speaker 2: Look, we've still got a lot of analysts saying that it is a buy. This has absolutely sent jitters around stock markets and investors. And I think it was almost $600 million was wiped off the market, $600 billion, sorry, wiped off the market cap of NVIDIA yesterday, which, as you say, is a tremendous amount. But when you look at the share price, it only takes it back to where it was in September last year. These chips are the bedrock of AI expansion. And as I said, there's a lot of questions about how DeepSeat came about. It's been using open source code, which was created by Meta to start with. So really riding off the back of coattails of some of the big US heavyweights. So going forward, I don't think NVIDIA is anywhere near out of the race. You know, it's... It still provides the pickaxe in what is being described as tech's gold race.

Speaker 1: As you mentioned there, I mean, China in developing this DeepSeat app has been able to circumvent not only the strict US controls on the chips, but also the technology, how it uses that technology. So where does this place China in the global AI race? Has it upended US leadership in the area?

Speaker 2: I don't think it's upended US leadership in the area at all. I mean, when you look at the number of data centers... In particular, I think the US outperforms China there by 12 to 1. So, I mean, it's a huge amount of cash which the US has already spent in trying to dominate this race. That said, you know, China is very much the underdog. And it's been looking at this AI space for as long as the US has been looking at this AI space. And clearly, from what DeepSeat has done, there will be other companies that will be able to come in and start really nibbling away at some... some of that US advantage. At the same time, we know that that chip trade issue, which has meant that some of those chips can't be supplied to places like China, that is also eating into the profitability of companies like NVIDIA. And when China hits a brick wall, it does usually find a way to scale that brick wall. So you've got to think that somewhere in China, they are working on developing chips that can perform at least as well as NVIDIA's.

Speaker 1: OK, let's turn our attention, Danny, now to China's economy more broadly. It was somewhat sluggish in the past year with pressures, particularly in the real estate arena. How is 2025, the year of the snake, shaping up for China?

Speaker 2: Yeah, I mean, China managed to come in with 5% GDP growth, which was what was predicted slower than the previous year. And at the moment, expectation is that it will be slower again this year, because it has... China has been inserting stimulus into the economy, but it's been less of a bazooka and more of a stabilizing effect as it tried to sort of change things. Now, consumer confidence is still incredibly low, though there have been a lot of moves to try and shore that up. And of course, you know, the big X factor is Donald Trump and those potential tariffs. China exports a huge amount to the United States, about 14% of its exports go to the US. So if that... If that is impacted by these tariffs, then clearly that is going to also put the brakes on growth.

Speaker 1: And do you think the economic leaders in China are already factoring in possible tariffs and possible other sanctions economically from the Trump administration?

Speaker 2: Oh, absolutely. I mean, they have been watching very carefully what is going on in the United States. And of course, you know, the tariffs haven't arrived quite yet. And certainly what Donald Trump has suggested might happen, threatened might happen. And haven't arrived because a lot of the tariffs are already in place from when Joe Biden was in the White House. So, yes, I do think that Chinese officials have been looking at this closely. They've been taking a lot of measures, you know, launching probes into companies like NVIDIA, preventing some materials being sold to the United States. I think a big test is going to be what happens with TikTok. Can there be an agreement between China and the United States? Which will allow TikTok to keep operating in the U.S. beyond that 75 days. That would suggest the tone of the relationship. But of course, 1st of February, when we're expecting potentially more tariffs, it's coming pretty quickly now.

Speaker 1: OK, Danny Hewson, really great to get your analysis. Thank you so much.

Speaker 2: Thank you. .