Don’t jump off the Nvidia bandwagon just yet.
China’s AI startup DeepSeek triggered a tech sell-off today as investors panicked over fears of a less expensive open-source large language model, raising concerns concerning the US’s AI dominance.
The tech-heavy Nasdaq (^IXIC) closed down 3%, with Nvidia (NVDA) leading the decline. The chip giant’s stock plummeted 16.9%, erasing a record $589 billion from its market cap.
That sent a ripple across the broader technology sector. Chip stocks including Broadcom (AVGO), Lam Research (LRCX), KLA (KLAC), and Marvell (MRVL) fell Monday, while Magnificent Seven members Microsoft (MSFT) and Alphabet (GOOGL) dropped 2% and 4%, respectively.
The autumn adds pressure for the group ahead of fourth quarter earnings. Wall Street is already expecting the group’s profit growth to fall to 22% within the fourth quarter, its slowest rate in nearly two years, amid renewed deal with capital expenditures.
Watch: Nvidia rout highlights ‘concentration risk’ in markets
However the panic-selling could also be overdone, in keeping with top analysts. Bernstein’s Stacy Rasgon characterised the market’s response as “overblown,” telling me the event of DeepSeek doesn’t spell out “doomsday for AI infrastructure.”
“I’m not of the idea that we’re anywhere near the cap on compute needs for artificial intelligence,” Rasgon said. “I’m of the idea that in case you’re freeing up compute capability, it likely gets absorbed … We will need innovations like this in case you’re going to have the option to maintain things going.”
Futurum’s chief strategist Daniel Newman echoed this sentiment. He said a more efficient model like DeepSeek will expand AI use, citing an economics concept called the Jevons Paradox.
“The market is totally missing this one,” Newman warned. “If we are able to use compute more efficiently … the businesses that we’re saying aren’t driving enough revenue will have the option to construct their models cheaper. They’ll have the option to create solutions with less overhead expense, and they’ll drive more EPS.”
The concept of the Jevons Paradox was also cited by Microsoft CEO Satya Nadella, who tweeted that as AI gets more efficient, its use will skyrocket.
“Spending remains to be continuing to speed up … I do not think that this has to stop that,” Rasgon added.
And it’s perhaps that sentiment that helped alleviate a few of Wall Street’s initial panic as Big Tech names including Microsoft closed well off their lows of the session, while Amazon and Meta finished Monday up 0.3% and 1.9%.