ORLANDO, Florida, Jan 27 (Reuters) - The impact of Chinese artificial intelligence startup DeepSeek on Wall Street remains uncertain. However, it has raised doubts about the notion of "U.S. exceptionalism" that has fueled significant concentration and risk in U.S. markets.
The belief that Silicon Valley leads the global AI competition has attracted massive investments into U.S. markets from worldwide sources. This perception has been at the core of U.S. exceptionalism, reflecting a strong confidence in sustained U.S. economic growth and Wall Street performance.
Yet, this narrative is now being challenged by a relatively unknown Chinese startup, DeepSeek. Despite operating on a limited budget, DeepSeek seems to be achieving comparable or superior results compared to U.S. giants that have invested heavily in AI technology.
Microsoft CEO Satya Nadella recently expressed admiration for DeepSeek's approach, stating to CNBC in Davos, "To see the DeepSeek new model is super-impressive. I think we should take the development out of China very, very seriously."
Investors are urged to pay attention as the influence of a handful of companies, particularly in the realm of AI, shapes not only the U.S. stock market but also global markets.
The dominance of Big Tech on Wall Street is striking, evident in the following statistics:
'PEAK MONOPOLY'
A small group of "Mag 7" stocks now account for over 35% of the S&P 500's total market capitalization, concentrating wealth more than ever before. Additionally, U.S. equities presently represent a record two-thirds of global equity allocation.
Market concentration has intensified over time, as highlighted by Hendrik Bessembinder, professor of finance at Arizona State University, in his 2023 study "Shareholder Wealth Enhancement, 1926 to 2022." His findings reveal that a mere 3% of the 28,114 U.S. listed firms between 1926 and 2022 generated nearly all the $55 trillion in shareholder wealth.
The trend of increasing concentration raises concerns about a potential "Peak Monopoly", as indicated by BofA analysts, as monopolies are historically disrupted by emerging technologies.
The accelerated pace of technological advancements has reduced the average lifespan of S&P 500 companies significantly, from 61 years in 1958 to less than 18 years by 2023 according to McKinsey. In today's rapidly evolving landscape, disruptive technologies are reshaping the U.S. economy and markets, underscoring the belief that "Disruption always wins," as noted by Bank of America's analysts.
The impact of DeepSeek's sudden rise and its disruptive potential remains to be seen. Nevertheless, recent market volatility suggests that significant repercussions may be on the horizon for market participants.
(The views expressed in this commentary are those of the author, a columnist for Reuters.)