The past few weeks have been challenging for the Magnificent Seven stocks and the broader AI equity complex. There was the roiling of tech stocks by news that China startup DeepSeek made significant language learning model (LLM) advancements at a lower cost and with antiquated chips.
Then there was a spate of earnings reports from Magnificent Seven members that were not greeted in favorable fashion by market investors. Put it altogether and it might sound like a time to avoid growth stocks and ETFs like the Invesco Top QQQ ETF (QBIG). That is a newly minted ETF that’s a basket of the Magnificent Seven names plus Broadcom (AVGO).
When taking the above factors into consideration, there’s no getting around the fact that AI stocks are dealing with near-term headwinds. But some market observers believe the long-term outlook for QBIG components remains compelling. They also believe that recent struggles could spell opportunity for prescient investors.
History Buoys Case for QBIG
Assuming the DeepSeek advancements are credible — some chatter suggests otherwise — the news could actually be a benefit to U.S.-based AI firms. That’s because they’re now forced to find avenues for enhancing AI efficiencies. History shows similar scenarios have played out in the past.
“The DeepSeek development is precisely that – a dramatic efficiency improvement which, in our view, drives incremental demand for AI. Rapid declines in the cost of computing during the 1990s provide a useful parallel to what we are seeing now,” noted Michael Zezas, global head of fixed income research & public policy strategy at Morgan Stanley.
Michael Gapen, Morgan Stanley’s chief U.S. economist, recalled another scenario that could be relevant to QBIG investors. When the internet/tech boom started in the 1990s, the price of computing power materially declined relative to output. Should AI follow a similar trajectory, it could allay investor concerns about the price that AI adopters — including some QBIG components — pay to advance AI efforts.
Zezas also mentioned Jevons paradox, which is 160 years old and holds that as tech advancements lower costs, demand increases. If Jevons paradox comes to pass in AI, it could have positive implications for QBIG holdings.
“In other words, cheaper and more ubiquitous technology will increase its consumption,” added Zezas. “This enables AI to transition from innovators to more generalized adoption and opens the door for faster LLM-enabled product innovation. That means wider and faster consumer and enterprise adoption. Over time, this should result in greater increases in productivity and faster realization of AI’s transformational promise.”
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