By Jamie McGeever
ORLANDO, Florida (Reuters) -The jury is still out on whether Chinese artificial intelligence startup DeepSeek will be the disruptive straw that breaks Wall Street’s back. But it has certainly called into question the “U.S. exceptionalism” narrative that has helped create unprecedented concentration – and risk – in U.S. markets.
The assumption that Silicon Valley is the unassailable leader in the global AI arms race is a key reason why U.S. markets have sucked in trillions of dollars from around the world in recent years. This trend has come to define U.S. exceptionalism, the deep-rooted belief in the continued outperformance of U.S. growth and Wall Street returns.
But this narrative may be starting to unravel because of a Chinese startup that few outside the AI world had even heard of until last month. DeepSeek, which has operated on a shoestring budget, appears to be achieving similar or better results than U.S. behemoths that have spent hundreds of billions of dollars developing AI technology.
“To see the DeepSeek new model is super-impressive,” Microsoft CEO Satya Nadella told CNBC in Davos last week. “I think we should take the development out of China very, very seriously.”
Investors certainly should, especially when the fate of the entire U.S. stock market – indeed, global markets – is being driven by so few companies and essentially one AI story.
The clout Big Tech wields over Wall Street is eye-watering. Just look at the numbers:
* Before Monday’s market rout, just five stocks – Nvidia,Microsoft, Alphabet, Amazon, and Meta – had contributed around700 points to the S&P 500 over the last two years. Excludingthese stocks, the S&P 500 would be 12% lower, according toSocGen’s Manish Kabra. Nvidia alone had contributed 4 percentagepoints to the performance of the S&P 500’s two-year gainsthrough Monday. * Nvidia’s last 12 months of earnings, reported in its mostrecent quarterly results, totaled roughly $63 billion, which isaround half the total made by all listed companies in each ofBritain, Germany and France over the last year, according toDeutsche Bank’s Jim Reid. * These companies plus Apple and Tesla – the “MagnificentSeven”, or “Mag 7” – have accounted for nearly 60% of the S&P500’s gains in the past two years, according to Bank of Americaanalysts.In short, the “Mag 7” embodies the “Americanexceptionalism premium on the S&P 500,” as Kabra wrote onMonday.
‘PEAK MONOPOLY’
Wall Street has never been beholden to so few stocks, with the “Mag 7” now accounting for over 35% of the S&P 500’s entire market cap. Meanwhile, U.S. stocks currently account for a record two-thirds of global equity allocation.
