The rise of DeepSeek has certainly stirred waves in the global market, drawing attention far beyond its initial baseWith its affordable yet powerful AI models, the popularity of DeepSeek has prompted growing skepticism about the massive investments made by tech giants in the realm of artificial intelligence (AI). There are voices questioning the sustainability of these investments, highlighting potential risks associated with the burgeoning AI sector.

Despite the concerns surrounding valuations and market bubbles, major players like Microsoft and Meta are firm in their commitment to continue funneling substantial resources into AIDuring recent earnings calls, they reiterated their plans to stick to aggressive investment strategies, signaling that the financial stakes in AI will remain highMeanwhile, SoftBank is reportedly eyeing a direct investment into OpenAI that could soar as high as $25 billion, potentially positioning the Japanese conglomerate as a key supporter of the burgeoning AI startup.

Ray Dalio, the founder of Bridgewater Associates, has sounded alarms about the potential for an AI-induced market bubble reminiscent of the dot-com era

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He indicates that the current enthusiasm surrounding artificial intelligence may be inflating equity prices to unsustainable levelsDalio stated that "pricing has reached a high level, and there exists interest rate riskThis combination could burst the bubble," drawing eerie parallels with the late 1990s when technologies reached hyped valuations, leading to a sharp market correction.

Meanwhile, shifts in the secondary market have been noted, particularly within the Japanese semiconductor sectorAfter experiencing a tumultuous plunge in share prices on January 27 and 28, certain stocks have begun to bounce back, indicating a response to the volatility stirred by DeepSeek's advances.

On January 30, Japan's stock market opened lower but rebounded as trading progressedThe effects of DeepSeek's model rollout were palpable, as stocks associated with the semiconductor industry experienced notable fluctuations in value following the initial shock.

Among the standout performers in the Nikkei 225 index was Advantest, a company specializing in semiconductor testing equipment

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On the morning of January 30, Advantest's shares surged nearly 7%, though this gain moderated by the afternoon, settling at a 3.22% increase at the close of tradingAdvantest's prominence in Japan's semiconductor market is underscored by significant recent attention from investors, buoyed by the recent announcement indicating a staggering 2.8-fold increase in operating profit compared to the previous period.

Statistics confirm that the launch of DeepSeek's new model, DeepSeek-R1, heavily influenced market performanceFollowing its introduction, Japan’s semiconductor sector saw dismal performance, grappling with acute sell-offs on January 27 and 28. For instance, Advantest's stock plummeted by 8.61% on January 27, only to suffer an even more drastic 11.14% drop the following daySimilarly, Tokyo Electron saw its shares decline by 4.90% and 5.74% on consecutive daysRenesas Electronics also suffered losses of 1.24% and 3.56%, respectively, highlighting the widespread impact of market sentiment around AI innovations.

In an ambitious move, SoftBank is considering committing up to $25 billion directly to OpenAI as they engage in negotiations aimed at positioning themselves as a leading backer of the AI startup

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Reports suggest that both entities are collaborating on a joint project in Texas dubbed “Stargate,” with an eye toward investing a staggering $100 billion in constructing data centers and other vital AI infrastructureTheir bold vision targets an overall investment of $500 billion within four years - a commitment, however, that has faced scrutiny from industry peers, including skeptics like Elon Musk who question the feasibility of such ambitious plans.

Details from OpenAI indicate that post-establishment of the Stargate partnership, SoftBank and OpenAI will become principal collaborators, with SoftBank's CEO Masayoshi Son chairing the initiativeThis dual partnership intends to harness the respective strengths of both companies, with SoftBank assumed to handle financial responsibilities while OpenAI focuses on operational duties.

Insiders reveal that beyond the $15 billion to $25 billion earmarked for OpenAI, SoftBank has also pledged upwards of $15 billion for the Stargate project, further intensifying the stakes in what has become a competitive landscape for AI investment

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After a significant funding round last autumn that raised $6.6 billion, OpenAI's valuation surged to an impressive $157 billion, partly credited to SoftBank’s involvementHowever, in the wake of these developments, on January 30, shares of SoftBank encountered a setback, observing a downturn of 1.06% and erasing gains made during a preceding upward trendThe trajectory also evidenced declines of 8.32% and 5.22% on January 27 and 28, respectively, results aligning with the wider market unease tied to the saturation of technology and the pressures around AI valuations.

Dalio’s recent warnings paint a worrisome picture regarding AI's fast ascension and its implications for the stock marketHe asserts that today's financial terrain bears remarkable similarity to that of the late 1990s, a time characterized by rapidly inflating valuations driven by enthusiasm for internet-related technologies

"At this point in time, a groundbreaking innovation has undoubtedly emerged, but it's crucial to differentiate between the technological triumphs and the investment trajectories that follow," he stated.

Looking back at the financial shifts of the late ’90s, we can see how an overly optimistic view of technology propelled stock prices to unsustainable heights until the inevitable corrections began to materializeThe Nasdaq 100, which saw a dramatic doubling in value in 1999, subsequently plummeted by around 80% by October 2002, revealing the often unpredictable dynamics of tech stocks and the lasting effects of market speculation.

As the market embarks on a fresh journey with AI at its helm, Dalio warns of the high stakes involvedIn the race for technological dominance between China and the United States, he argues, the stakes are not merely financial but also relate to broader strategic and military implications