DeepSeek, a Chinese AI model, is making waves in the tech world, impacting U.S. tech stocks. The startup claimed it built an AI model using Nvidia's less-advanced H800 chips in just two months at a cost of under US$6 million.

Its V3-powered app quickly became the top iPhone download in the U.S. on Jan 20, impressing AI experts and capturing the tech industry’s attention. Founded in 2023, DeepSeek asserts that its AI models rival or surpass leading U.S. counterparts at a fraction of the cost, challenging the notion that scaling AI requires massive computing power and investment.

Investor concerns over AI valuations have triggered a negative market reaction. On Jan 27, the S&P 500 fell 1.5%, the Nasdaq dropped 3.1%, and Nvidia, the “darling” of the AI boom, plummeted 17%, wiping out nearly US$600 billion in market value—the largest one-day loss in U.S. history.

However, DeepSeek’s rise could help counteract the impact of U.S. AI chip restrictions imposed by President Biden. It highlights that not all AI data centers need the latest Nvidia GB200 chips, as lower-powered AI chips remain highly relevant.

While U.S. tech stocks sold off, the value and cyclical-heavy Dow Jones gained 0.65%, suggesting a temporary investor shift from growth to value stocks. A similar trend may unfold in the local bourse this week.

With rising volatility and potential market swings this year, factors such as U.S. policies and Fed rate decisions will play a crucial role. The Fed’s likely continued easing stance could support the FBM KLCI.

Until market conditions stabilize, a defensive approach is advisable. Banking, REITs, utilities, healthcare, and consumer staples offer stable earnings and consistent dividends. Their attractive yields can help cushion downside risks while presenting opportunities for price appreciation.