Treasury Bills (SGOV): The Cheap Model That Spooked the Herd
Why the DeepSeek scare misreads what cheaper AI does to GPU demand, and why parked cash in short Treasuries beats gambling on earnings prints.
Peeing in the Bushes
A Chinese lab released a model, a price tag of roughly $5 million got stapled to it, and the market promptly decided the whole American AI complex was built on sand. The number did most of the damage. At best it covers a final training run, leaving out the GPU clusters that already existed, the failed experiments and the years of research the run leaned on. A headline cost and a full cost are different animals, and the crowd traded the headline.
I have watched this choreography enough times to know the steps. A challenger appears, the incumbents look mortal for a few days, Goldman's talking heads and the loudest accounts on X declare a new era, and then the incumbents either absorb the trick or absorb the challenger. The losers are the ones who dumped carefully chosen positions into the cortisol spike and watched the recovery from the sidelines.
Three Old Tricks in a Trench Coat
Strip the DeepSeek story down and you find three familiar techniques stacked together: a Mixture of Experts design that wakes only part of the network for each query, distillation that lets a smaller model learn from a bigger one, and lower-precision training that squeezes more work out of every chip. Each is real. Each cuts cost. None is a ticket to the singularity, and none alters the fact that AI at scale still consumes capital and infrastructure only a few balance sheets can carry.
What cheaper AI does change is who can afford to use it. A lower unit cost pulls in more users, more applications, more inference, and more of the compute and cloud capacity behind all of it. The letter's central claim is that the panic got the sign wrong: falling cost feeds demand for GPUs and data centres instead of starving it. Efficient Chinese models may undercut some US technology at the margin, but similar work is brewing everywhere, and DeepSeek reads as an alarm clock for the incumbents rather than a wrecking ball.
Older Chips, Sharper Hacks
The part I find most useful sits beneath the price tag. Cut off from Nvidia's newest hardware, Chinese developers wrung results out of older GPUs by rethinking the architecture rather than waiting for a delivery. Constraint produced ingenuity. The lesson travels: wherever demand and capital line up against a shortage of hardware, energy or materials, somebody engineers around the wall. Anyone collecting premium on the assumption that a bottleneck holds is betting that nobody finds the hack.
It also reframes China's AI ecosystem, which the letter treats as a potential gem rather than only a threat. Tencent, Alibaba, GDS and VNET sit on deep domestic demand and state-backed investment, and carry a geopolitical discount that could become an asymmetric payoff if the politics stay manageable. That is a large if, and the letter says so. The same race for efficiency pushes American firms to double down on their own innovation, which tends to enlarge the sector rather than shrink it.
Cash While the Lottery Runs
Which brings me to SGOV, the unglamorous end of the letter. This issue carries no options trade, for a simple reason: most companies were reporting, and positioning into an earnings print is a lottery ticket dressed up as analysis. Instead the letter spotlights the instrument that holds our cash between ideas: short Treasury bills yielding about 5.1%, about as close to risk-free as the market offers, and the place where roughly 70% of our cash sits when nothing better presents itself. Getting paid to wait is the quiet edge that panics reward.
From here the things worth attention are the earnings prints as they land, which will show whether GPU and cloud demand is holding up in the numbers rather than on X; the tone of the sell-side and the social feeds, which swing from apocalypse to euphoria without stopping at analysis; and the Chinese names, for any sign the geopolitical discount is narrowing. The panic will pass, as they all do. Cash earning a real yield is what keeps you at the table when it does.
- SGOV
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