The šŸ”„H.E.A.T.šŸ”„ Formula

AI Driven Insights to Spark Your Portfolio

January 28, 2025

The H.E.A.T. Formula is a radically different way to look at investing your portfolio.

ā€H- Hedges, you should always have hedges and be agnostic as to being long or short. Bonds are not a hedge

ā€E-Edges, you should always look for edges. Preferably these are edges with some sort of psychological underpinning, structural edges, or some sort of barrier to entry.

ā€A-Asymmetric. Everything you do, be it trades or your overall portfolio, should be designed so that heads you win a lot, tails you lose a little.

ā€T-Themes. You should always be invested in the top themes. Most everything else is just noise.

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Market Recap

So it took me a while, but I got into DeepSeek to see what the fuss is all about. I plan to run ChatGPT Pro and this in parallel, just like the days of the old search engine wars itā€™s way too soon to know whoā€™s going to be the next Google here. One interesting thing off the bat, I have been trying to get GPT to analyze an options strategy for me, and itā€™s analysis is slightly off. This happens and usually you can prompt it to figure out the right answer, but I have been struggling. DeepSeek got it right away, no prompting necessary. On the other hand, I gave them both a fairly complex portfolio optimization task. DeepSeekā€™s answer was pedestrian, GPT gave a much more well thought out portfolio design. We will seeā€¦.

The key question now is whether DeepSeek transforms the trade at all, and if so, how? I think that unless you are forced, itā€™s too soon to get out of all the infrastructure names. They are bouncing this morning, but be careful, traders often use the next day bounce to sell what they didnā€™t sell the day before.

Jefferies had a note this morning that I think summarizes things pretty wellā€¦.

If the claims are true, we see it as a positive for the macro picture as more companies and areas would have access to cheaper AI, which can help improve efficiency. Reduction in cost should be a medium term positive and help expand the reach of AI in more areas. It would be a negative for a selected few sectors including chip manufacturers (less need for high-end chips) and energy (less energy requirement). Hence, we see it as a rotation story, rather than a negative view on risky assets.

Tech earnings season is upon us. Investors will be closely watching the commentary.

Bottom line is that itā€™s too early to tell the impact, we know AI is the future, we just donā€™t know how that future will unfold and whether it will look like the future we envisioned last week. You should still have chips and infrastructure, but you should also have AI agents, software, emerging market AI, healthcare AI, robotics, and the companies not involved in tech who will most likely benefit from AI. Oh, and FOMC is tomorrow.

Who Does DeepSeek and ChatGPT Think Are Going to be the Winners?

So I asked DeepSeek who it thinks will be the winners from itā€™s existence, and then I asked GPT to analyze what DeepSeek said.

DeepSeekā€™s analysis was kind of blandā€¦.

Summary of Top-Rated Beneficiaries

NVDA 9

MSFT 9

SNOW 8

AMZN 8

GOOGL 8

BLK 8

TSM 9

GPT went a bit furtherā€¦

  1. NVIDIA (NVDA) ā€“ 10Reason: The biggest winner in GPU-driven AI demand.

  2. Taiwan Semiconductor (TSM) ā€“ 9Reason: Global chip leader; essential for manufacturing advanced AI hardware.

  3. Microsoft (MSFT) ā€“ 9Reason: Azureā€™s suite of AI services and enterprise reach.

  4. Amazon (AMZN) ā€“ 9Reason: AWS is the leading cloud; cost-efficient AI expands its addressable market.

  5. Alphabet (GOOGL) ā€“ 9Reason: Google Cloud adoption + internal AI (DeepMind, Bard) threatened by cost competition but can still benefit from scale.

  6. ASML (ASML) ā€“ 8Reason: Provides the indispensable EUV lithography machines fueling next-gen chip production.

  7. AMD (AMD) ā€“ 8Reason: Second major AI GPU/accelerator player, capturing the upswing in AI demand.

  8. Snowflake (SNOW) ā€“ 8Reason: Data warehousing and analytics essential to any AI deployment; usage volumes will rise.

  9. CrowdStrike (CRWD) ā€“ 8Reason: Cybersecurity depends heavily on AI for threat detection; cost-efficiency => broader AI usage at scale.

  10. Palo Alto Networks (PANW) ā€“ 8Reason: Similar AI-driven cybersecurity tailwind as CrowdStrike, plus strong enterprise installed base.

Key Takeaways

  1. Semiconductor & Cloud Wins: Chips (NVIDIA, TSM, AMD, ASML) and cloud giants (MSFT, AMZN, GOOGL) remain at the center of the AI revolutionā€”even (and especially) if AI models become more cost-effective, because broader adoption increases overall demand for compute.

  2. Software & Data Platforms: Tools for storing, cleaning, monitoring, and orchestrating data (Snowflake, Datadog, ServiceNow) thrive as more firms adopt AI.

  3. Industry Verticals: Financials, healthcare, retail, and automotive all benefit from cheaper AI-driven insights and automation.

  4. Cybersecurity Boom: CrowdStrike and Palo Alto Networks stand to accelerate advanced threat detection and real-time monitoring with lower AI costs.

In essence, DeepSeekā€™s ultra-efficient AI acts as a catalyst for greater overall usage of AI in every corner of the market. Following that logic, the biggest winners are those who provide core infrastructure, data platforms, mission-critical AI-driven software, or vertical solutions where AI can unlock cost savings or new revenue streams.

The Industry Verticals are perhaps the most interesting area to me. These are the companies that are using AI to potentially increase revenues, who would benefit from cheaper AI. See belowā€¦.

Industry Verticals

Here are the companies GPT flagged as having the most potential benefit from implementing AI (Mag 7 names removed except TSLA FYI)ā€¦.

BLK 8

JPM 8

TSLA 8

NFLX 7

TMUS 7

DE 7

ABNB 7

MRNA 7

ILMN 7

Key Observations

  1. High-Data-Volume Sectors Win Big: E-commerce (Amazon), streaming (Netflix), and financials (JPM, BlackRock) have massive data pools to feed AI models. When AI is cheaper, these companies can run more sophisticated models at scaleā€”leading to improved recommendations, pricing, and risk management.

  2. Mission-Critical AI in Healthcare & Automotive: Drug discovery (Moderna) and autonomous driving (Tesla) are highly compute-intensive. Any reduction in compute cost speeds up testing, prototyping, and market-ready solutions.

  3. Consumer-Facing Platforms Gain Revenue Through Personalization: Travel (Airbnb, Booking), telecom (T-Mobile), and media (Netflix) see direct revenue lifts from refined personalization and dynamic pricing. Cheaper AI => they can do more frequent, more granular predictions without eroding margins.

  4. Industrial & Manufacturing Upsides: Companies like John Deere use AI for next-gen equipment (autonomous tractors), where cost savings in compute can open up new customers and expedite R&D.

  5. Financial Services Remain a Powerhouse: Firms like JPMorgan or BlackRock can integrate AI more deeply into everything from algorithmic trading to wealth management, expanding premium services and capturing alpha or client flows.

Final Takeaway

  • Most Impactful Vertical: Financial services (due to data volume and direct revenue generation from AI-based trading/products) and Retail/E-commerce (due to personalization and scale).

  • High-Potential Vertical: Healthcare/Pharma (longer timelines, but massive ROI from faster drug discovery).

  • Emerging Use Cases: Industrials, automotive, and telecom as they embed cheaper AI into critical infrastructure and physical systems.

In short, any industry that relies on large-scale data analysis, real-time decision-making, or deep predictive capabilities stands to significantly boost revenue when AI costs are minimized. The companies best positioned to profit are those that (a) already leverage AI at scale and can double down on it with cheaper compute, or (b) have strong data-driven business models that expand as AI becomes more accessible.

MSFT & TikTok?

Hereā€™s what GPT had to say, (Interestingly, DeepSeek said pretty much the same thing)ā€¦.

Bottom Line

Should Microsoft genuinely acquire TikTok, the immediate impact might be mixed due to heightened scrutiny and potential overhang from integration/overpayment risks. However, if successfully integrated and monetized, the addition of a major social media asset could enhance Microsoftā€™s growth, expand its reach to younger audiences, and diversify its revenue in the longer termā€”ultimately positive for the stockā€™s prospects.

Value Stocks?

Value guys are desperate for anything they can get but the market doesnā€™t work in styles any more, it works in themes. The traditional ā€œvalueā€ stocks that are using AI to enhance what they do and/or cut costs will win. Stocks that are just plain undervalued are usually that way for a reason.

Crypto

I continue to believe in crypto. We have a pro crypto President, a pro crypto SEC, and a crypto czar. Crypto has nothing to do with DeepSeek aside from a one day correlation to NASDAQ stocks.

Before you go: Here are ways I can help

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  6. Wealth Management-Coming SoonThe views and opinions expressed herein are those of the Chief Executive Officer and Portfolio Manager for Tuttle Capital Management (TCM) and are subject to change without notice. The data and information provided is derived from sources deemed to be reliable but we cannot guarantee its accuracy. Investing in securities is subject to risk including the possible loss of principal. Trade notifications are for informational purposes only. TCM offers fully transparent ETFs and provides trade information for all actively managed ETFs. TCM's statements are not an endorsement of any company or a recommendation to buy, sell or hold any security. Trade notification files are not provided until full trade execution at the end of a trading day. The time stamp of the email is the time of file upload and not necessarily the exact time of the trades.TCM is not a commodity trading advisor and content provided regarding commodity interests is for informational purposes only and should not be construed as a recommendation. Investment recommendations for any securities or product may be made only after a comprehensive suitability review of the investorā€™s financial situation.Ā© 2025 Tuttle Capital Management, LLC (TCM). TCM is a SEC-Registered Investment Adviser. All rights reserved.