The Practical Islamic Finance Podcast

Deep Red

Rakaan Kayali

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Deep Red

In this episode, we will cover:

  • Intro and Market Overview
  • DeepSeek AI: Hedge Fund Strategy?
  • Implications for NVIDIA and AI Investments
  • Market Volatility: Key Stocks Affected
  • Tariffs, Inflation, and Foreign Policy Impact
  • Fed Meeting Predictions and Market Rebound 

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DISCLAIMER
Anything you hear in this video is an opinion. It is not personalized financial advice. Make sure you do your due diligence before making any investment decisions.

As-salamu alaykum, folks. I hope you are doing well. Quite a day in the market. DeepSeek, the LLM that a hedge fund in China did as a side project, this caused the NASDAQ to fall close to three percent today. It's quite an interesting world that we live in. Never a dull moment. That being said, I don't think my thesis on basically anything changes because of deep seek. And it is interesting to think about the possibility that perhaps as a hedge fund, I mean, it would be a stroke of genius if this hedge fund in China released this deep seek model and had shorted the NASDAQ, knowing that it would be down three percent or at least be down substantially after such an announcement and made money from the short and then entered into these tech companies at discounted prices. That would be quite the quite the script that this company could have written for itself. But all that being said, to talk about DeepSeek in a very concise manner and what my thoughts are on it, they've managed to replicate and in fact improve upon some of the LLMs that We are familiar with it, such as OpenAI's ChatGPT. They've managed to do that, and it appears that they've managed to do that in a way that is more cost effective. Now, to what extent it's more cost effective, it's unclear. Not necessarily in terms of the power that they're using, but rather the number of GPUs that they're using. Obviously, if they're violating any of the export restrictions on NVIDIA GPUs, they are not going to be admitting that or freely sharing it. So there remains to be some questions regarding exactly how much more efficient their model is, but it does appear to be more efficient. My take on this is that even if they are more efficient, the result of this is going to be an expansion of the use cases that we can use AI for and increase demand therefore for AI inference. And the fundamental fact remains that if you have more GPUs, if you have more access to electricity, access to power, then you can build more stuff and you can have more complex applications. That's the fundamental reality. And therefore, I don't think that this gain in efficiency that was demonstrated by this Chinese hedge fund will cause any sort of tempering in the race to acquire more and more GPUs, specifically from Nvidia, and will require more and more power to actually do all the processing. So In summary, I don't see anything changing with regards to our thesis on data centers, our thesis on, you know, access to power and the need for it, our thesis for, you know, building out electricity infrastructure, and being involved in first order, second order, third order companies that are impacted by this secular trend and investing in them. So with that being said, I think there's actually a golden opportunity in the market right now to establish positions in the highest quality names that will be part of this secular trend. So Tesla was basically the least impacted company uh mag seven stock um well apple was actually up apparently the market doesn't really consider it an ai company nvidia was down uh seventeen percent I think probably not justifiably so something like bitdeer was down uh Twenty five percent. I was energy was down. Twenty five percent. This is why I always say, hey, take profits, guys. The market is volatile. You'll be able to sell that profit and buy back, inshallah, at lower prices. Don't go overboard taking profit, but take just enough so that you're happy you took profit so that you can buy at lower prices. That's what we did with Bittier. And with regards to Bitcoin, it's still at one hundred and two thousand. So we've maintained a robust level for Bitcoin. Dogecoin is at thirty three cents and Solana is at two thirty seven. So I think that this type of tweet, it's the end of the world, even though it's sarcastic, is probably probably overblown. If you look at the map here for. movers today. Obviously, technology stocks were the most impacted, Nvidia being probably the most well-known and impacted stock. Apple was up three percent again because no one considers it an AI company, I guess. That being said, I should shout out to Jim Cramer because, I mean, this guy never misses. Only last week he was saying NVIDIA stock, which has been roughly flat since June of last year, could be breaking out. So this guy really never misses. Now, in terms of NVIDIA and its commentary on China's deep seek, R one model, it calls it an excellent AI advancement. And I agree. It is an excellent AI advancement. They're doing things more efficiently. Great. But that doesn't negate the fact that with more compute power, you can do more things. Um, it, it, it proves that, you know, with the same amount of compute, if you improve the algorithm, uh that you can do more that that is true but all else being equal with more compute more nvidia chips more access to power you can still do more that's the bottom line and so the appetite for businesses to acquire as many gpus as they can to build out their data centers, perhaps with different configurations that granted, but so more efficiently designed data centers, yes. But their motivation to build out these data centers, make sure that they have power and that is still top priority for them. So I don't really think anything with regards to DeepSeq changes that. And also, I think that information will come out regarding the true amount of resources that were used to achieve DeepSeq and the models that it is pumping out. It actually pumped out another model that actually generates images, and it was beating DALL-E's image generation and other leading image generation AIs. We'll get more information about that. I'm not taking them at face value with regards to their claims about how much it costs and how many GPUs they're using. But And I think that additional information is going to be revealing on the upside in terms of how much resources were used. But as we get more information, I think the market will correct. And as the market has some more time to think about this and gets confirmation from more and more companies that know they're not going to be cutting back on their drive to invest in AI. I think, in fact, the opposite. I think what has been proven is that you can do, there are more possibilities for what can be done with compute and AI that should actually incentivize companies to be even more aggressive in this field. NVIDIA commented, as I mentioned, said it was an excellent AI advancement despite the Chinese startup's emergence causing the chipmaker stock to plunge. The comments came after DeepSeek last week released R-One, which is an open source reasoning model. that reportedly outperformed the best models from US companies such as OpenAI. And also, I have to say that it's hard for me to believe that because there is a backlog on NVIDIA GPUs and companies are fighting amongst each other who can get the NVIDIA GPUs and who's ahead of who in the order for delivery. It's hard for me to believe that This could have all been solved if these companies just arranged their algorithms differently and did something differently. I mean, there's a lot of IQ points at these companies, and they're thinking about doing things in the most efficient way possible. And so if a hedge fund could do this side project that beats them out, this seems like there's something missing in this story. Yeah, I think that, yes, there's a lot of smart people in China, but there's a lot of smart people working for these big American companies as well. And so it's tough for me to actually accept that, oh, this side project that this hedge fund did. figured something out that all these big Tesla, Google, Microsoft, Amazon, all of their billions of dollars of engineers on payroll completely missed. I think there's perhaps some details that we're missing here. NVIDIA statement indicates that it sees DeepSeek's breakthrough as creating more work for the American chip maker's graphics processing units or GPUs. Now, obviously, they're going to say that. So they're incentivized to say this. They're not going to say, oh, well, this means a cut to our business. I understand where the incentives lie here. But I do think it's also true. The possibilities that DeepSeek has revealed I have basically expanded the potential applications and made them more affordable and accessible and therefore their applications more diverse and therefore the demand for these chips should actually increase. So DeepSeq was number one, topping the charts, which is quite impressive in the free apps category in the App Store. What is even more astonishing is that Threads was number three, which begs the question, who the heck is using Threads? And we did get... visual confirmation of the CTO deep seek CTO. This is him right here in the picture. And apparently the conversation that happened was open AI, huh? Five hundred billion. Give me two weeks and five million and I'll clone it ASAP. So there's a very important part of history for you. And in other news over the weekend. So apparently Columbia refused to accept some of the illegal migrants of their nationality that had entered the United States. United States shipped them back to Colombia in C- one thirties. And Colombia was like, oh, no, you can't ship them back in military planes where you can only ship them back in civilian planes because they're not criminals. And Trump didn't like that. So he's like, OK, if you don't accept them, we're going to slap twenty five percent tariffs on your goods. And if you don't take them back within a week, that twenty five percent tariff is going to become fifty percent tariff. And yeah, apparently Columbia capitulated and they're like, OK, we'll take them. So. I guess this is the new norm for foreign policy. And if it worked, I think you're going to see a lot more of a lot more saber rattling and probably tariffs from this new administration. So with that, let's take questions very quickly. As-salamu alaykum, Muhammad Amar Khan. Mr. Basha perplexity AI tweeted deep seek is now hosted in US EU data centers data never leaves Western service service. The open source model is hosted completely independent of China. That would be great. Actually, it would encourage a lot of people to use it. Obviously, a big concern is, you know, data, privacy, and, you know, we ban tik tok and then you know the the ban was delayed because of you know security concerns privacy concerns so I imagine the implications of a lot of people you know using deep seek and that being hosted you know somewhere in china yeah salam rashad salam dr khalid dr khalid says alhamdulillah we survived yep we're all all of our limbs are in place alhamdulillah These guys, my user, please be smart. Luay says, Salaam, Rakan. Salaam. What do you think about ISM BitDeer for this week? Do you think we'll dip more? I don't know where the bottom is, but I play the cards that are dealt, and you saw that in my buys today. Salam Zuhair, nice to see you. Money flowing from AI to crypto market. Yeah, perhaps. I mean, I think there's a big overlap in the Venn diagrams between those two populations. Yeah, I think it's an exciting day. I mean, wherever there's trouble, there's a lot of opportunity and we saw that today. tariffs could affect inflation, could potentially make the Fed raise interest rates. I honestly think that the dip that we experienced today in the markets, and if it extends to tomorrow, that This will actually be very good for, sorry about that. This will actually be like, this will actually encourage the Fed to have a more dovish stance when it has its meeting later this week. So we'll see, we'll potentially get a bounce back from that. Deep opportunity to buy today. Yeah, indeed. Are we concerned about Bank of Japan upcoming meeting? um it is you know something to to keep track of but I don't think really japan is the uh the heavyweight that would warrant concern necessarily. I think obviously the carry trade and their raising interest rates made us very sensitive to what they say and what they do. But I think that was a unique situation because no one was expecting it. It was completely unexpected. Now, I think people are much more cautious about Bank of Japan policies and perhaps are not as overextended as they had been with regards to the leverage that they've taken out. And an interest rate rise is not as unexpected as it was when it first happened last year and caused that big dip. Tariffs will deter people to not buy the expensive imported goods and look at buying local products, which will cause demand for local products. It's not really that easy, brother. You know, there's a lot of, you know, second, third, fourth, fifth order impacts of tariffs, and not all of them are positive. If that was the case, you know, a lot more countries would do it. I generally am not a fan of tariffs, uh, unless you're dealing with, you know, a psychotic country like, uh, Israel. Um, then, you know, I would do tariffs, but, um, I would, I would just actually ban any dealing with them. But, um, you know, generally normal people who have some semblance of right and wrong. I generally am more a fan of, you know, people specialising in what they're good at. I think that's creates the most value. Yeah, remember to like please. No. So I think what happened is a lot of these AI stocks have run up a lot and a lot of holders of these AI stocks don't really understand why they're holding them. And so they were just looking for any reason basically to panic sell. because they've run up as much as they have. But I don't think AI is something that's overhyped. I think it's the most important invention that will continue to impact humanity for the next ten years. That is, it is probably, you know, looking back, it will be the most important thing that happened, you know, in the next ten-year timeframe. And so I don't think it's overhyped. I think we're just getting started. It's tough to say. I don't think, obviously, I mean, it's probably not going to, you know, be a sharp bounce back, especially because we have that speed bump in the middle of the week with the Fed meeting. I think there's going to be a lot of anticipation for that. But I think maybe after the Fed's comments and if they are dovish, a lot of the deep seek panic will be forgotten. yeah I uh so master blender instead asks uh basically that question do you do you think the market will react positively to a dovish leading fed yeah I do think so I think you know the market often has very short memory and especially if the earnings come out very solid earnings are a big thing this week and if they come out very solid and guidance is very solid commentary from these ai companies is very solid in terms of their guidance we don't see any drop in orders we don't see any drop in planned investments I think the market is going to recover very strongly from this Maybe it takes more than a day or two, but I think the recovery will be very strong. And in a six-month time, we'll look back at the dip that we experienced today and say, wow, that was a really great opportunity. That's my prediction. So with that being said, do leave a like if you enjoyed this live. Become a PIF member if you aren't already. And until next time, make sure to take care of yourself. As-salamu alaykum and peace be upon you all.