Live: A Chinese AI Startup is Sending Tech Stocks Down
OMG TECH IS DOWN EVERYONE FREAK!
Don’t actually freak. I just wanted to simulate Wall Street a lil bit.
Chinese company DeepSeek essentially is an AI company that has comparable performance to the best US models, but at a fraction of the cost.
And US companies have felt the response. AI focused companies like NVIDIA, Microsoft, and Google have all dropped in stock value.
Feel free to learn more from this pretty solid article from Yahoo Finance.
Why does this matter?
While tech is one industry among many, it has a large effect on the economy as a whole.
Because companies like NVIDIA, Microsoft and Google are so large, they are represented proportionally in stock groups (indexes).
What this means is that when these stocks fall, the economy as a whole follows.
This is not cause for panic by any means. But it does mean that the economy and your investments may take a hit when AI competitors hit the news.
Learn: Index Fund Exposure
A popular form of investing is buying ETFs, index funds, or mutual funds (I do this!).
From a very simple standpoint, these are financial products that act as a group of stocks. When you buy an index fund, you are buying into the group of stocks in that fund, and your money is spread across the different underlying companies.
This makes important investment habits such as diversification (spreading your money across many asset classes, industries, and stocks) significantly easier. You can own hundreds or even thousands of stocks with one purchase.
But just because you buy an index fund does not mean that your money is equally distributed. Many index funds are weighted by market cap. What this means is that larger companies in the fund will have a larger effect on your investments.
For example, a popular index fund is VOO, or the Vanguard S&P 500 ETF. This index tracks the 500 largest stocks in the US economy, but does so by market cap. So in this case, among the 500 largest stocks in the US economy, seven large ones (often referred to as the Magnificent 7) make up 33% of the index.
So WHAT?!?
The Magnificent 7 are as follows: NVIDIA, Microsoft, Google (Alphabet), Amazon, Meta (Facebook), Apple, and Tesla.
Notice anything about these companies? They’re all tech focused!
So if tech is suffering, than these huge companies will lead many index funds down as they make up a huge portion of the fund.
So if you bought an index fund with a bunch of different stocks, that doesn’t mean your money is spread evenly between them. You could be overexposed to one industry, like tech!
Launch!
Let’s figure out what you’re invested in!
Look into index funds you are/would invest in. Are they weighted by market cap, or are they weighted equally? To be weighted equally means each stock makes up the same portion of the fund, no matter how big or small.
Also look into what stocks are in the fund. If you want advice on how to do this, send me an email! But you can just google “What stocks are in VOO,” and you should get a pretty solid list.
This will help you realize what you actually are/will be invested in, and how you might diversify your investing if you are overly invested in one industry.
Having a thorough knowledge of where your money lies will give you a stronger idea of how current events directly affect your wallet. If you’re proactive, the finance game becomes easy (as you can see with lil Timmy above ;).
—Ben Brosnahan
