Short Seller Jim Chanos Flags DeepSeek-Like Risk As Biggest Threat To Markets In Next 6 Months: ‘…Comes Out Of Left Field That Changes People’s Thinking’ Jim Chanos Flags DeepSeek As The Biggest Risk To The Markets In The Next Six Months. Cautions Against - Meta Platforms (NASDAQ:META), NVIDIA (NASDAQ:NVDA)

Noted short seller Jim Chanos raised the alarm about potential unpredictable risks and excessive speculation in the U.S. markets, citing the recent DeepSeek debacle that wiped out nearly $1 trillion in market value.

What Happened: In a conversation with Bloomberg TV on Wednesday, Chanos highlighted that the most significant threats to the U.S. markets in the next six to twelve months would be unforeseen events akin to the DeepSeek incident. “The real risks will be something like DeepSeek that comes out of left field that changes people's thinking,” Chanos said. “By definition, we do not know what that is.”

Chanos also voiced his worries about excessive speculation in the stock market. However, he pointed out that it has not yet reached the heights of the 2021 boom when the S&P 500 soared by 27%. He stressed the need for investors to differentiate between companies that justify their high valuations and those that do not.

Furthermore, Chanos expressed concerns about the market’s reaction to political drama, particularly President Donald Trump’s proposed tariffs. He argued that a 10% levy against China would not generate significant revenues and suggested that tariffs would need to be significantly increased on both China and the EU.

Why It Matters: The DeepSeek incident Chanos referred to has been a hot topic in the AI industry. The Chinese AI startup, DeepSeek, developed an open-source language model, R1, for under $6 million, which outperformed established competitors in several tests, challenging the big-spending approach prevalent in Silicon Valley.

However, DeepSeek came under scrutiny when U.S. officials began investigating whether it acquired advanced Nvidia NVDA chips through backdoor channels, potentially bypassing U.S. sanctions.

Furthermore, a research note from Piper Sandler suggested that while DeepSeek is ahead of Meta Platforms Inc.'s META latest Llama model, it still lags behind leading AI labs like OpenAI and Anthropic by about six months.

Meanwhile, Don Townswick, director of equity strategies at Conning Asset Management warned that the impact of DeepSeek could shake the U.S. markets once again. Speaking to MarketWatch, he stated, "If DeepSeek's technology turns out to be less reliable than currently believed, the ‘Magnificent Seven' stocks would likely benefit.” On the whole, Townswick sees broader corporate gains in the long run if more companies integrate cheaper AI solutions if DeepSeek succeeds in offering a lower-cost AI alternative.

These developments have triggered a mix of optimism about democratized AI and fears of an AI stock bubble bursting, sending ripples throughout financial markets.