The January release of a free large language model by Chinese startup DeepSeek briefly raised investor concerns that AI growth projections might be overly optimistic, according to Fidelity Portfolio Manager Rick Gandhi, who nonetheless believes the emerging player could ultimately help boost demand for the companies providing essential AI infrastructure.
“While DeepSeek may change part of the equation, it is not likely to undermine investors’ original thesis,” explains Gandhi, who co-manages Fidelity® Convertible Securities Fund (FCVSX) with Adam Kramer. “That’s because demand for AI infrastructure remains substantial, and the AI story is still in its earliest stages.”
In helming the convertible bond strategy, Gandhi focuses on both capital preservation and capital appreciation within strict risk parameters. The fund normally holds at least 80% of assets in convertible securities, which are hybrid financial instruments that tend to behave like stocks when the underlying share price is high and more like bonds when it is low, according to Gandhi.
He explains that when DeepSeek introduced its AI chatbot in January, many investors started to question their assumptions about the growth opportunity for chipmakers, data-center operators, electricity providers and other companies that support AI development.
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However, he says that demand remains robust, whether it’s for enormous power consumption or the specialized chips that enable AI applications.
Gandhi notes that DeepSeek may potentially pave the way for cheaper, less energy-intensive AI applications, while also helping to lay the groundwork for more-sophisticated tools that could drive greater demand over time.
He cites this as one reason why many of the stocks that were hit particularly hard following the January 27 DeepSeek announcement quickly regained most of their lost value – and then some – in subsequent months.
“The market appears to have concluded that DeepSeek could lead to greater efficiency and sustained growth,” Gandhi believes. “As a case in point, major cloud companies say they are still struggling to keep up with rapidly growing demand.”
He notes that the fund’s exposure to AI has, for some time now, included equity holdings in chipmakers Nvidia (NVDA) and Taiwan Semiconductor Manufacturing (TSM), and Canada-based electricity power generator TransAlta (TAC).
“Nvidia is the dominant chipmaker behind AI technology, while Taiwan Semi also makes AI-related chips,” Gandhi says. “Meanwhile, TransAlta supplies some of the massive electricity needs of the AI industry. I believe all stand to benefit from continued growth in demand for AI.”
For specific fund information, including full holdings, please click on the fund trading symbol above. Securities mentioned were fund investments as of October 31.
Rick Gandhi is a portfolio manager in the High Income and Alternatives division at Fidelity Investments.
In this role, Mr. Gandhi co-manages Fidelity Advisor Convertible Securities Fund and Fidelity Preferred Securities & Income ETF. He also co-manages Fidelity Multi Strategy Credit Fund and the convertible and preferred sleeves of Fidelity Strategic Dividend & Income Fund.
Prior to assuming his current responsibilities, Mr. Gandhi was a research analyst in the High Income division. In this capacity, he covered sectors, including software, gaming, energy, technology, and media, which consisted of cable, broadcast, and satellite.
Prior to joining Fidelity in 2009, Mr. Gandhi was an associate at Barclays Capital where he advised insurance clients on financing and investment solutions and an analyst at Morgan Stanley where his responsibilities were structuring and marketing interest rate and currency swaps to corporate clients. He has been in the financial industry since 2004.
Mr. Gandhi earned his Bachelor of Science in economics from Guilford College and his Master of Business Administration in finance from the University of Chicago Booth School of Business.