TGIT: DeepSeek Deepfake, Small Caps Ascending and a New Rising Star
Jevon's Paradox, Meta, Microsoft, Semtech, the Russell 2000, five more small caps, Grammy bets and more. First time reading? Join other risk-takers, entrepreneurs, traders, investors, data geeks and alpha types. Sign up for free here.
TGI Thursday! (1/30) Your latest buzzword has arrived. After pivoting from pandemic expertise to geopolitical analysis faster than Elon can tweet, Silicon Valley's chattering class has discovered Jevon’s Paradox. It’s a 19th-century economic principle that's suddenly become the must-drop reference in any AI discussion. The paradox is that more-efficient steam engines led to more coal consumption. In much the same way, the very people who couldn't predict Monday's $600 billion Nvidia (NVDA) bloodbath are now confidently explaining Tuesday's rebound—cheaper AI will result in greater GPU chip demand. Welcome to tech punditry, where being wrong yesterday qualifies you as an expert today.
But here’s what the pundits didn’t see coming this week: While Meta (META) was busy writing $65 billion checks and America's tech titans were planning their $100 billion Stargate cathedral in Texas, something called DeepSeek crept into the American consciousness. It’s a scrappy Chinese AI startup that flipped the chess board, triggered the largest single-day vaporization of wealth in U.S. stock market history and may have proved that less is sometimes more. It’s the hot topic in this week’s TGIT, along with a look at some high-performing small caps hidden within the Russell 2000 and apparently on the verge of bigger moves.
But as we resume the chess game, let’s consider the end game. The big prize is AGI—artificial general intelligence. What was once a sci-fi fantasy now seems likely to occur this decade. And then what?
Just ask Leopold Aschenbrenner, who’s fresh from OpenAI's "superalignment" team. (Yes, that's actually what they call it.) He wrote Situational Awareness, a 165-page warning that AI is about to swallow civilization whole. His prophecies include predicting an unnamed company will soon reach a $10 trillion valuation because, apparently, a mere trillion doesn't cut it anymore. He also says that by 2027 AI will replace the researchers who created it. (Unemployment comes for us all.) By 2030, he expects the charming prospect of superintelligent machines to become reality. Oh, and we're about to accidentally gift-wrap AGI breakthroughs for the Chinese Communist Party—Merry Christmas, Beijing!
The irony? Well, aside from the apocalypse, Aschenbrenner believes only a few hundred chosen people (and perhaps, only a mere handful of Luckbox readers) "understand what's about to hit us." The rest of us, including the AI experts who think this is overheated nonsense, just don't get it.
Aschenbrenner warns that our failure to erect sufficient barriers around AGI "will be irreversible soon: in the next 12-24 months” and that "superintelligence" must become “the United States' most important national defense project." (Wait, what about Greenland?)
As measured risk-takers, we thought Nate Silver’s new book was among the best things we’ve read recently. But for investors trying to get their heads around more than just the next leg up, Aschenbrenner’s opus is essential reading. (For the TLDR crowd, jump ahead to The Project, and Parting Thoughts.)
Stay lucky! (It looks like we’re going to need it.)
Everyone Thought China Needed Nvidia's GPU Chips for AI. Then This Happened.
Just days after America's tech aristocracy announced Stargate, their $500 billion AI vanity project, a Chinese upstart named DeepSeek crashed their party with all the subtlety of a wrecking ball. While Sam Altman and friends were exchanging high-fives over their grand vision, this newcomer built a rival AI system for roughly the cost of a Silicon Valley executive's annual bonus.
The rub? It might actually be better than ChatGPT. Now, as Meta (META) and Microsoft (MSFT) endeavor to explain their billions in AI spending to increasingly skeptical analysts, the real question isn't whether China has caught up—it's whether the obituary for Silicon Valley's "more is more" philosophy is written in Mandarin. Read Full Story
DeepSeek’s chatbot provided accurate responses to news and information prompts only 17% of the time.
Nvidia's Nightmare: Did Big Tech Just Waste Half a Billion Dollars on AI?
While Silicon Valley's prophets were busy building $500 billion AI temples and promising digital nirvana, a Chinese startup just walked into the party with a $5.6 million knockoff that works better than the original. The result? Nvidia led tech stocks lower but has since recovered.
Hey! Hold on: Cantor Fitzgerald suggests this technological wedgie from Beijing might actually be bullish for U.S. tech. Something called "Jevon’s Paradox" apparently means that making AI cheaper could drive demand for more chips, not fewer. So, while the market panic-sells faster than Meta burns cash, the real question isn't whether America has lost its tech mojo—it's whether anyone in Washington noticed we're in a race. Read Full Story
Meta Soars, Microsoft Stumbles: DeepSeek Reshuffles the AI Deck
While Zuckerberg hints at possible collaboration between Meta (META) and DeepSeek, the Microsoft (MSFT) cloud business shows signs of turbulence, sending its stock into a tailspin. Both tech giants are doubling down on massive AI investments despite the DeepSeek breakthrough suggesting they might be overspending by billions—not millions. But here's what Wall Street is missing: chip makers Nvidia (NVDA) and Broadcom (AVGO) might be the real winners in this high-stakes game of technological chicken. Our analyst reviews yesterday’s earnings reports from Microsoft and Meta and evaluates their near-term outlooks. Read Full Story
Getting Small with the Russell 2000
In an era when a single tech ticker can dwarf an entire index, the Russell 2000 emerges as the underdog that refuses to be ignored. While the financial media obsesses over the latest AI-driven surge in the S&P, this "forgotten" small-cap index has actually outperformed its bloated big brother in 56% of the past 25 years. For options traders seeking premium returns, the Russell's elevated volatility isn't just a bug—it's a feature. Plus, some of its constituent stocks are serving up juicy premiums. Read Full Story
Watch List: Five Small Caps
While Wall Street obsesses over the Magnificent Seven, a peculiar phenomenon has been unfolding in overlooked nooks and crannies of the market. Several small-cap stocks have quietly delivered returns of 400% to 1,700%.
From genomic breakthroughs to fintech disruption, these companies are writing their own David vs. Goliath narratives. But here's the sobering subplot: their valuations now suggest either a revolution in the making or a reminder that market euphoria knows no market cap. Before you decide whether these are genuine pioneers or just this year's version of 1999's dot-com darlings, here's what you need to know. Read Full Story
But is it Worth 95x Earnings?
Semtech (SMTC) is capitalizing on the AI boom with its growing presence in data centers and its partnership with Nvidia. Its stock rallied 240% in the last year, but this week DeepSeek triggered a correction resulting in a 20% discount from recent highs. Our analyst outlines the company’s next moves and offers advice on what you should be watching. Read Full Story
Why Losers Make Better Premiums Than Winners
Instead of trying to time Nvidia’s mood swings, smart options traders have discovered a less glamorous goldmine: the Russell 2000's red-headed stepchild, IWM. Sure, 40% of its companies don't even make money, but that's exactly what makes it beautiful for premium sellers.
Before you dismiss small caps as too risky, consider this irony: Their very instability might be your ticket to more predictable returns. Here's Errol Coleman's take on trading the unloved index. Read Full Story
This Entrepreneur's "Checklist" Took Him to 47% Trading Returns
The Rising Stars series shares the true stories of people from all walks of life who have conquered options trading. The latest installment features a Texas janitorial services company owner who trades options strangles three-to-five times a week from his laptop. No finance degree, no Goldman Sachs pedigree—just a methodical approach that's delivering consistent returns. Read Full Story
The Prediction Trade
DeepSeek Fatigue? How About Some Grammy Action? 🎶
While traders nurse market-induced PTSD and count down to Taylor Swift's next NFL appearance, the prediction market purveyors at Kalshi have conjured up something contrarian: 24 ways to bet on Sunday's 67th Annual Grammys Awards. Our resident musical provocateur, The Rockhound—who possesses the rare ability to distinguish actual talent from industry-manufactured mediocrity—laid out her predictions when the nominations first dropped. The kicker? Her Album of the Yearpick is sitting at 2:1 odds.
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Getting Small with the Russell 2000
