Speaker 1: Let's keep talking some tech ramifications of DeepSeek competition for computing AI power. Caroline Woods joining us from New York, our Senior Markets Correspondent. Tell us some of the war stories here. What's going on this morning, Caroline?

Speaker 2: Hey there, Oliver. Yes, DeepSeek wreaking a little less havoc on some of the big tech stocks now that we're almost an hour into trading, including Meta. Share is only down about 7 tenths of a percent right now. Still seeing pretty significant losses for names like NVIDIA and Broadcom, though. So we're watching how stocks are reacting. We're also starting to hear how companies with rival large language models are reacting to DeepSeek's R1 LLM. According to the information, Meta has already set up four war rooms to analyze the technology. Two of those rooms are reportedly focused on how HiFlyer, the hedge fund that created DeepSeek, was able to reduce training costs. I know you hit on it, but DeepSeek claimed to have trained its models on older NVIDIA chips for just 5.6 million dollars. Now some on X, including Elon Musk, are suggesting that DeepSeek actually has the higher end GPUs from NVIDIA, but they're just not admitting it. But that less than 6 million dollar price tag compares to the 100 million dollar plus that it cost to train the latest model behind OpenAI's chat GPT. So the information is reporting that Meta actually wants to utilize those techniques. So those are the first two war rooms. Now the third war room is focused on what data HiFlyer may have used. DeepSeek has made R1 open source under the MIT license, and it also laid out its methods in two detailed white papers. So Meta likely analyzing those. And then the fourth war room is considering new techniques for restructuring Meta's models based on the attributes of the DeepSeek models. So you can see Meta's reaction right here. Shares were significantly lower this morning, now only down about four tenths of 1%. Now we should get more reaction from companies like Meta, Mark Zuckerberg on the earnings call, Satya Nadella over at Microsoft. So I'm assuming they'll be facing some hard questions on the earnings calls this week, especially since they've already pledged to spend billions more to really advance their AI models. So it's certainly an interesting story to kick off the week, and we'll see how it plays out. But right now, NVIDIA is still down almost 13%, but Meta inching closer to that unchanged

Speaker 1: line. Yeah, I mean, it seems like the market wants to buy the dip. It's really trying to. And you know, these companies are not going to go down without a fight. So Mr. Confidence Man of the Year, Mark Zuckerberg, I guess we'll see what he has to say. He's been pretty out there lately with commentary. So we'll see maybe if he gives us something this week. It might be nice to hear from some of a few of these CEOs on kind of directly instead of some of these reports. But the reports are helpful so far to at least, you know, kind of give us some context on how they're responding. War Rooms being enacted, you know, hey, competition, you would think, makes things better. But it also might hurt some of these valuations if they're not the only game in town anymore.

Speaker 2: Yeah. And I think that the competition side of it isn't necessarily as new. For example, you know, ChatGPT has kind of lost its first mover advantage a bit as so many of these other companies have actually come out with their their own large language models. But I think that, you know, the fact that so many of these competitors are spending billions of dollars to try to make them and this is a company that that says they can do it for under six million. That being said, it doesn't there are some caveats there. It doesn't include the cost of research and development. The Wall Street Journal is reporting that DeepSeek has already said that U.S. export control or restrictions to China is creating issues for the company. So there's certainly some caveats associated with it. But, you know, a cheaper competition certainly could could, you know, make this pretty interesting. And I think that's why we saw such a such a sharp sell off at the open. Just, you know, some fears about what that could actually mean, especially competition coming from China.

Speaker 1: Yeah. I mean, it also just might, you know, if it's like for the most people and I think most customers, too, that being able to get to the end result is going to be what's most important as opposed to to some extent how fast it happens or how perfectly it happens. I mean, if they're kind of now in like a race to the bottom for like efficiency and price, then that may not be the worst outcome for for many of us or many customers where it's kind of like similar to some extent with the phone stuff or any other gadget, right? You can have the super high end or you can not like some of that's going to be up to your choice. I mean, dupes are dupes, right?

Speaker 2: I think it depends. I think from a consumer perspective, we certainly see in that despite that, you know, the government has said that there's risk around using tick tock people, billions of people continue to use tick tock. But I think from a larger company perspective, I'd bring it back to Dan Ives tweets this morning saying that no U.S. Global 2000 is going to use a Chinese startup, Deep Seek, to launch their infrastructure. I think that's true. So I think. Yeah, I think it depends on, you know, if you're thinking consumer perspective or if you're looking at it from a larger company perspective there.

Speaker 1: Yeah, I think that's fair. Thanks, Caroline. Appreciate the context there. Let's do some trading. Let's look at the stock chart. Joel Hawthorne joins us, head of equity research at Retail Trader magazine. Morning, Joel. What do you think about this sell off?

Speaker 3: Good morning. Thanks for having me, Oliver. You know, I think it caught a lot of people off guard. I think I was checking X this weekend and I definitely saw so much news and so much information on Deep Seek. And I think coming in this morning, just looking at futures overnight is one of those moves. We haven't seen a move like this since December 18th, right after the Fed, and seen futures down over 100. I think at one point we were down maybe 130 or so. And it's interesting, the resiliency that we see in Meta right now from coming in opening at about 626 and now only trading 642. So definitely some resiliency in this market.

Speaker 1: Yeah, they're really going for it. When you look at this, do you view it as a golden opportunity, like Dan Ives says, for buying dips in some of these winters, or is this just the beginning of air getting let out of a big old bubble?

Speaker 3: You know, I think two things can be right at the same time. I think it's a little bit of both. I think right now we see, we could very well get shocked here and see stocks all up here by end of week. We've got a lot of economic data, we have a lot of earnings coming out, and that's kind of the basis of my trade. I think right now we very well could see some momentum as a dip buy, and people looking at this as a discount, because some of these names were definitely priced pretty frothy. At the same time, I think the volatility here is here to stay. So I think that we could very well see that VIX. We saw it this morning pre-market 2250 or so, and it's coming down here now, it was coming down about 18.5 and kind of spiked back up to almost 19. So we could see some names go higher, but at the same time see vol go higher as well.

Speaker 1: The vol stocks connection, an important one, VIX just shy of 19. Tell me about the MetaTrade, Joel, take me through what you see in the options.

Speaker 3: It's a bit aggressive. I think ahead of earnings, the option market is pricing in roughly about a 7.5% move around earnings, but I want to kind of be aggressive here. I want to kind of buy a stride. I'm going to buy the 627.50, call the 627.50 put. Just because of all this morning, I paid a little bit more than I wanted to because it's a debit for me, 63.44. Theoretical break-evens are 564 and 690. But I think if we do get that vol up, and depending on the news, stock rallies on earnings, stock falls on earnings, we could very well see higher vol means that this could really be a benefit for me. On my upside, my potential to make money is unlimited by buying these calls and puts. So I kind of like this. I like the opportunity, if vol does spike, because I do need a higher volatility to really make this trade work.

Speaker 1: I like it. Is it going for a big move here?

Speaker 3: Yeah, yeah, I think so. I think we're priced in, like I said, the earnings right now are looking at about roughly a 7.5% move. That would put us roughly at the time where we opened up at about 6, I want to say 6.70 to the upside for the stock. And that's just slightly, that's about $20 higher or so than the 52-week high of 6.52. And so if that happens, I mean, we understand that that could be a huge move for the bulls there. And that changes the whole narrative around all the fear we heard this weekend, right, for Meta and some of these other names particularly. But at the same time, let's keep in mind, though, we're not out the woodworks. We still have the Fed this week. We still have a lot of other names that could really hold this stock down, which means vol will spike to the upside if we get more selling pressure. I anticipate that VIX to maybe revisit some of those higher price levels that we talked about.

Speaker 1: It's an interesting strategy and a fun one that I sympathize with on a week that's starting off this way, because, you know, you could easily see a stock like Meta shrug this off and then rip. And you know, we've been in this kind of like melt-up FOMO environment. So then, boom, your call works. But then if this is just kind of a first step to a deflating of a little bit of a tech bubble, then, I mean, anything's possible to the downside. So I kind of like the idea of just looking for volatility if it's not appropriately priced in Meta, which, you know, given the stock chart, it's been pretty calm. You can see why the vol is a little bit cheap here. So why not take a shot at a company that should be right in the middle of all of this?

Speaker 3: Absolutely. That is the idea, the basis of the trade itself. And then let's also revisit the idea that if they're going to report earnings on Wednesday and we have the Fed on Wednesday as well, we know that that end of that last hour or two of trading after Powell gives his speech and does Q&A, we understand that's really where the bulk of the move really comes from. And then we've also seen coming into that Thursday session, anything is possible, right? We're going to be glued to futures overnight, coming into that Thursday morning session. And then we also, the weeklies will expire that Friday. So this week is going to be a very pivotal time for a lot of these names and to see what kind of follow through happens after a lot of these events. And that's really what I'm playing this for. I'm pretty sure I won't keep this trade on for the life of the trade itself or the expiration going into Feb. But just that move that I'm anticipating here, we'll see what happens.

Speaker 1: All right. Good stuff. I like the trade. Thanks, Joel. Looking for some action in meta. Joel Hawthorne, head of equity research, Retail Trader magazine, buying a call, buying a put, looking for a big move.