I was on vacation last week, so here’s a brief analysis of key events and their impact on capital markets.
Last week, the market continued its downward trend, with a sharp rebound late on Friday likely driven by month-end fund rebalancing and a gamma squeeze triggered by the expiration of a large volume of options and the rebalancing. This does not indicate a shift in market sentiment. Therefore, today's decline should not be too surprising. However, note that the S&P 500 is only down about 4% from its peak. The reason why investor sentiment feels particularly bearish is that previously popular stocks, such as $Tesla Motors(TSLA)$ , $NVIDIA(NVDA)$ , and some speculative small caps, have experienced significant declines. Long-term bonds, as a safe-haven asset, performed well last week.
Risk assets extended losses today due to news of potential tariffs. The policy uncertainty surrounding the Trump administration continues to weigh on markets, reinforcing the view that reducing exposure in 2025 remains the prudent approach. Given that the current market pullback is still relatively modest, there is no rush to buy the dip. Additionally, my view on long-term bonds remains unchanged—they can still be held as a safe-haven asset.
This week, attention should be on the ongoing Two Sessions meetings in Beijing. The key focus for investors remains whether stimulus policies will exceed expectations, which presents a potential risk for Chinese equities.
On the macroeconomic front, today’s release of the final U.S. February Markit Manufacturing PMI came in at 52.7, exceeding the forecast of 51.6. However, the ISM Manufacturing Index for February, also released this morning, fell short of expectations at 50.3 versus a forecast of 50.8. Generally, ISM data carries more weight. This week's key macroeconomic events include Wednesday’s Markit Services PMI and ISM Non-Manufacturing Index. Since services account for more than 70% of the U.S. GDP, these data points will be even more critical—especially amid rising concerns about the U.S. economy. On Thursday, Trump is expected to host a cryptocurrency summit at the White House, which I will discuss further below. Friday brings the highly anticipated Non-Farm Payrolls (NFP) report, with the market currently expecting job growth of 160,000, a relatively modest figure.
U.S.-Ukraine Summit / European Defense Stocks
Last Friday, Trump and Zelenskyy met at the White House, an event that drew significant global attention. My takeaway is that both Zelenskyy and Vance came out ahead, while Trump found himself in an awkward position. Zelenskyy adopted a strategy of “high-profile confrontation + tactical compromise.” Amidst growing tensions between the U.S. and Europe, he took a hardline stance on aid discussions, directly clashing with Trump in a bid to force European allies to take a clearer stance and prevent any weakening of support due to Trump’s policy shifts. If Trump were to unilaterally cut aid to Ukraine, it could be perceived as a decision driven by personal grievances—he has well-documented issues with Ukraine—rather than national interests. This, in turn, would spark backlash both domestically and internationally, making it more challenging for him to justify policy adjustments. Trump now finds himself in a dilemma: cutting aid could be seen as letting personal biases cloud his judgment, while continuing support might appear inconsistent with his previous rhetoric. I believe the U.S.-Ukraine mineral agreement will ultimately be signed, but we are currently in a phase where both sides are trying to save face. It shouldn't take too long.
Vance’s actions align with his long-term political ambitions—he is solidifying his position within the Republican Party by demonstrating unwavering loyalty to Trump. Given the current GOP landscape, securing support from the MAGA base is a strategic necessity. Keep in mind that Vance has a Silicon Valley background and already enjoys backing from right-wing elites, so focusing on winning over MAGA supporters makes perfect sense.
Markets responded sharply, with European defense stocks surging. Germany’s Rheinmetall soared over 13%, while Italy’s Leonardo jumped more than 16%. Increased European defense spending could be a long-term trend worth monitoring. However, I wouldn’t recommend chasing these stocks at current levels, as they are technically overbought. Instead, it may be better to keep an eye on the sector and wait for a better entry point.
DeepSeek Open Source Week / Semiconductors
Last week, DeepSeek released a series of open-source AI technologies. The table below summarizes the key announcements. I consulted some AI industry experts, and the consensus is that each of DeepSeek’s contributions is highly valuable. Many were both grateful and puzzled by how freely DeepSeek is sharing its advancements. One thing is certain: open-source models are catching up with proprietary models at an accelerated pace. I previously argued that it would be difficult for AI models to maintain a significant performance gap in the long run, and this latest development further reinforces that belief.
Source： DeepSeek Github，US Tiger Securities
The biggest surprise came on Day 6 with the unveiling of the DeepSeek-V3/R1 inference system. Originally planned as a five-day event, DeepSeek added an extra day to disclose key design aspects of its flagship R1 inference system. In simple terms, DeepSeek has implemented a series of optimizations that have dramatically improved R1’s efficiency in large-scale deployments.
Just how efficient is it? DeepSeek revealed that on a 278-node cluster (each node with eight H800 GPUs), daily operational costs amount to approximately $87,000, while theoretical daily revenue based on API pricing could reach $562,000—implying a staggering 545% profit margin. Though DeepSeek’s calculation method differs from standard accounting practices, by conventional measures, gross margins would be around 85%.
Additionally, NVIDIA last Monday announced optimizations specifically for R1 (see below), enabling a theoretical 25x revenue increase and 20x cost savings. While I won’t go into the technical details, a clear industry trend has emerged since R1’s launch: optimization. The most immediate impact is that AI computing costs are likely to drop significantly in the near future, potentially reducing concerns about compute shortages. This makes investing in semiconductors more complex. On one hand, lower AI costs will drive broader adoption, increasing overall demand for compute power. However, the key question remains: will downstream applications and software create enough breakthrough use cases to offset the surge in token supply? If the answer is no, then AI hardware demand could fall short of expectations. Given this dynamic, investors might be better off betting on downstream AI applications rather than semiconductors, as the risk-reward balance appears more favorable.
Source： Nvidia X Account
NVDA Earnings
NVIDIA’s latest earnings report was solid, but the stock sold off sharply. Beyond macro factors, the market remains concerned about visibility into 2026 and whether NVIDIA can maintain its 75% gross margin. The aggressive CapEx plans of major hyperscalers (excluding Microsoft) suggest that NVIDIA’s 2025 outlook is relatively secure. However, as I’ve previously stated, the real concern is 2026—will hyperscalers continue investing at the same pace? Additionally, ongoing AI efficiency improvements could lead to an oversupply of compute power. While NVIDIA GPUs still dominate in terms of versatility, software support, and ecosystem strength, ASICs hold a clear cost advantage for specific tasks. Hyperscalers will continue developing their own AI chips to reduce dependency on NVIDIA, making future GPU demand highly uncertain.
Chinese Equities
For those invested in Chinese stocks, now might be a good time to start taking profits. If the U.S. stock market enters a bear phase, Chinese equities are unlikely to remain unscathed. Additionally, the upcoming Two Sessions could trigger a “sell the news” event if stimulus policies fail to exceed expectations. Lastly, the recent frenzy surrounding the Mixue Bingcheng IPO suggests that sentiment may be getting overheated.
If U.S. markets stabilize and Chinese equities continue to climb after a consolidation period, I would keep an eye on the potential Ant Group IPO as another signal to take further profits.
BTC / Crypto
Over the weekend, Trump announced plans to establish a Crypto Strategic Reserve, including BTC, ETH, SOL, XRP, and ADA. The news triggered a weekend rally across these assets. However, I remain skeptical. My assessment is that the same team behind the launch of the $TRUMP token likely orchestrated this announcement. Trump himself is unlikely to be familiar with ADA, a relatively niche asset outside of crypto circles. Furthermore, the fact that this was announced on Truth Social rather than X, and that there was no official government statement, strongly suggests that this is not a formal policy move.
I previously shifted my BTC outlook from bullish to neutral in early December. Now, following this Crypto Strategic Reserve announcement, my stance has turned slightly negative.
Source： Truth Social
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