(Michael M. Santiago/Getty Images)

Goldman analysts offer history lesson on the AI spending binge

Questions about whether such giant bets can possibly pay off are rising. Should they?

1/30/25 5:00PM

In many ways the DeepSeek freak-out on Monday was a mini crisis of confidence related to the vast sums American tech giants are pouring into building out their AI fiefdoms.

As Rani Molla has noted recently, Google, Meta, Microsoft, and Amazon alone could spend more than $250 billion on capex this year.

Even if there is some mystery surrounding the true cost of DeepSeek’s model, the arrival of a low-cost Chinese AI option quite rightly prompted some questions about whether such giant bets can possibly pay off.

In a recent note, Goldman Sachs market analysts offered some context:

“History provides some useful lessons. First, the original capex spenders on revolutionary technology are not always the biggest beneficiaries; the experience of the Telecom companies in the late 1990s is a good example.
Second, even very dominant companies eventually succumb to competition — often from new companies in the same sector — just as AMD and Intel experienced, for example, with the ascent of Nvidia. The extent to which these observations are relevant to the current market setup is still not clear.
But the news around DeepSeek has been a wake up call that has shaken the confidence that was reflected in market pricing. Indeed, our technology analysts argue ‘DeepSeek has introduced pricing competition into the foundational model layer at a point in time where models are just about good enough for many enterprise use cases’. The revelation of a cheaper competitor entering the AI space has exposed the risk of concentration.”

Concentration, or the share of overall market value crammed into the market capitalization of the largest stocks, has been extraordinarily high in the US in recent years as the Magnificent 7 have romped.

Of course, the heroic ability of these megacap tech companies to offset one another’s losses with gains, with investors seemingly dumping one to buy another, has kept this vulnerability from being realized, like when Nvidia cratered on the DeepSeek news but its peers didn’t, preventing a broader market crisis.

“The concentration of equities as an asset class that has left equity investors vulnerable to disappointments,” Goldman analysts wrote.

Max Knoblauch3h

Nike’s China business declines for seventh straight quarter

Sportswear kingpin Nike reported results for its third quarter, which ended in February, after the bell Tuesday. The stock fell about 3% in after-hours trading.

For fiscal Q3, Nike reported:

Earnings of $0.35 per share, comfortably above the Wall Street consensus of $0.29 per share compiled by FactSet.
$11.28 billion in total revenue, roughly in line with the $11.26 billion estimate.

Nike’s sales in China — where the company earns about 15% of its revenue — fell 7% to $1.62 billion. That’s its seventh straight quarter of sales declines in the market, though this quarter’s was less than feared. The company had issued weak guidance for this quarter considering continued softness in the region.

“This quarter we took meaningful actions to improve the health and quality of our business,” said Nike CEO Elliott Hill. “The pace of progress is different across the portfolio and the areas we prioritized first continue to drive momentum.”

Nike shares are trading near decade lows this month, as tariffs continue to weigh on profits and shipping costs rise amid the war with Iran. As of Tuesday’s close, the stock was down 17% year to date.

Luke Kawa, Tasha Matsumoto

Stocks end worst quarter since 2022 with best day since May

Optimism that the end of the war may be near sent stocks surging.

Max Knoblauch5h

Oil-sensitive travel stocks pop following Iran state media reporting on potential war resolution

Travel stocks are surging on Tuesday as oil prices fall following reports from Iranian state media that President Masoud Pezeshkian said the country has “the necessary will to end this war,” but would only do so with guarantees that “prevent the recurrence of aggression.”

The war has sent oil prices and refining margins surging this month, causing airlines and cruise lines to cut profit forecasts despite reported high demand.

Following Tuesday’s update, shares of the big four US airlines (Delta Air Lines, United Airlines, American Airlines, and Southwest Airlines) all climbed, along with smaller rivals including JetBlue. US airlines have stopped fuel hedging in recent years, increasing their exposure to upward swings in oil prices.

Cruise stocks also rallied, with Carnival and Norwegian up more than 6% and Royal Caribbean up about 5%.

J. Edward Moreno8h

The FDA is expected to lift restrictions on certain peptides, the NYT reports

The Food and Drug Administration is expected to lift restrictions on certain peptides, allowing the experimental, often injectable substances to be sold by compounding pharmacies, The New York Times reported Tuesday.

The potential move was previously reported by The Wall Street Journal, and teased by Health Secretary Robert F. Kennedy Jr. on the “Joe Rogan Experience” podcast in late February.

Peptides have boomed in popularity recently, with search interest for “peptides” surpassing “ozempic” this month. Many of them are currently understudied and not approved for human use, a rule consumers are able to bypass by purchasing them from suppliers that sell them for, ostensibly, research purposes only.

As reports of the FDA changing its stance of peptides mount, consumer health companies like Hims & Hers and Superpower have been getting ready to roll out their peptide offerings as soon as they get the FDA's blessing.

The peptide gold rush: How impending deregulation could supercharge a shadow industry

Matt Phillips9h

Memory stocks bounce as Bernstein analyst calls TurboQuant fears “overdone”

Memory stocks rose Tuesday, after Bernstein analysts called the recent panic over Google’s TurboQuant AI algorithm “overdone.”

Bernstein analyst Mark Newman wrote:

“[Hard disk drive] and Memory stocks have sold off significantly due in part to fears from Google’s TurboQuant report. This however, should have zero impact on HDD demand and negligible impact on NAND demand. Given the stock sell-off we see this as an attractive entry point for Seagate Technology Holdings, Western Digital and Sandisk’s and upgrade WDC to Outperform.”

All three stocks were up early Tuesday, as was memory chip maker Micron.

Today’s rally stands in stark contrast to the pummeling these shares have endured over the last week, after Google Research published a technical paper on March 24 detailing its TurboQuant AI algorithm, which compresses the amount of data associated with AI operations without affecting the accuracy of AI models.

That was seen as a threat to surging AI demand for memory storage, which has supercharged prices for memory chips and memory-related stocks over the last year.