Let’s all just take a DeepBreath.

DeepSeek — China’s answer to ChatGPT that’s reportedly just as powerful and much more cost effective — set off an international AI arms race over the weekend that led to a $1 trillion stock market rout. Nvidia’s 17% plunge Monday was the largest single-day drop in US history and reminded advisors that, yes, even the untouchables are vulnerable to a flash crash. While the sector has since pared losses, investors were left wondering if the $500 billion in new investments from the likes of OpenAI, Softbank and Oracle, might be a tad overcooked. And even though the AI boom is just getting started, new competitors, like DeepSeek, are making it harder to pick the ultimate winners. 

“We’re in new territory here,” said Philip Alberstat, managing director at the advisory firm Embarc Advisors. “The market’s still figuring out how to value AI assets.”

I’m in Too Deep

The DeepSeek news certainly hit at an interesting time for Big Tech. Fourth-quarter earnings are on deck this week from Mag 7 stocks, like Meta, Microsoft, Tesla and Apple. While Wall Street is expecting growth to fall to just 22% — the slowest rate in nearly two years — some analysts said that would be enough to justify current valuations. “Keep an eye on earnings,” Alberstat told The Daily Upside. “They’ll tell us who’s actually making money from AI and who’s just talking about it.” 

For advisors, solid business fundamentals obviously matter. While there are certainly examples of AI-related stocks that are overpriced, the sector as a whole still has value plays, said Evan Feagans, senior equity analyst with TCW. There will be winners and losers, which also means “prime opportunity” for savvy advisors. Feagans cited a standout metric:

• The Nasdaq Composite index is currently trading at a six-turn, next-twelve-months P/E premium relative to the S&P 500. (A fancy way of saying: the market likes its future earnings potential.)
• But, that metric is also well within the historical range, meaning there may still be room for Big Tech to run, according to the TCW data.

“Given that it is one of the most promising investible secular growth opportunities, we believe that reducing exposure could lead to underperformance,” Feagans told The Daily Upside.

You’re My Best Frenemy. The new competition might not necessarily be all bad. The DeepSeek advancements could put pressure on the segment and push companies toward further advancements and efficiency. Better AI products would likely lead to higher returns on those investments. 

The recent tech selloff was likely more about market exhaustion than any real concerns about the future of the technology, Alberstat said. The “healthy reset” will help separate the innovators from the AI hype. “The AI landscape is moving faster than anything we’ve seen before,” he said. “Stay flexible.”

Over the past four years, Citigroup has been crafting a plot to reinvigorate its wealth management division. But so far, it’s had as many twists and turns as an M. Night Shyamalan film. 

Global Head of Citi Private Bank Ida Liu announced an exit this week after 18 years at the company. Now, the bank is restructuring the unit that caters to some of its wealthiest clients, according to an internal memo from Citi Head of Wealth Andy Sieg, which was reviewed by The Daily Upside. “These changes are in line with Citi’s strategy to reduce complexity and strengthen our focus on clients,” Sieg wrote.

A Bit of Maneuvering

Ever since Jane Fraser took over as Citigroup CEO in 2021, her mission has been to strengthen the bank’s wealth arm, which has lagged behind competitors. As of 2023, the group reportedly received tens of thousands of complaints each month. 

The good news is that Citi experienced healthy fourth-quarter earnings, bolstered by record revenue generation in its wealth division. Unfortunately, the bank has also seen dozens of senior executives exit and plenty of restructuring after Sieg, a former Merrill Lynch exec, arrived at the company in 2023. According to the memo, the latest shifts and people moves include: 

• Replacing Liu’s position as global private bank head with four geographic executives, who will all report to Sieg. Cayman Wills is heading up operations in North America.
• Incorporating Citi’s Family Office Group into the bank’s Integrated Client Engagement arm.
• Bringing on former UBS executive Christian Zeinler as the firm’s head of strategy for the wealth unit and head of business execution for its private bank.

Where’d Everybody Go? Liu’s exit also marks a further dwindling of women in leadership positions at Citi. In the past two years, Titi Cole and Karen Peetz left the company. While Wills is a new woman in a top role, her position is temporary. 

To be fair, women hold the majority of positions on Citi’s board of directors. However, Citi’s five core divisions are all helmed by men, and Fraser’s 18-member executive management team includes just two other women.

Talk about a short attention span.

Zero days to expiration (0DTE) refers to options contracts that expire at the end of the trading day, and can be placed on a whole swath of publicly traded securities. While options largely used by retail investors, like puts and calls, mature over much larger time frames, like weeks or months, these strategies are for experienced traders who are willing to take on risk by placing a bet on a single trading day. 

They’ve also exploded in popularity after versions found their way to the Cboe exchange in 2022. Interest in options among both professional and self-directed investors is surging with volume topping 2 billion contracts last year, according to Intercontinental Exchange. A handful of companies have even packaged 0DTE contracts in easy-to-use exchange-traded funds. And with all the recent fanfare, advisors are asking questions about how these products work inside client portfolios. 

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