Declining AI Stock Prices Amidst News of Cost-Effective Chinese Model
Key Stock Performance
* Broadcom (AVGO) plunged over 13%
* Nvidia (NVDA) dropped as much as 15%
* Advanced Micro Devices (AMD) fell around 5%
Market Impact
* S&P 500 (^GSPC) lost 1.6%
* Tech-heavy Nasdaq (^IXIC) declined 2.8%
Chinese AI Model Spurs Concerns
* DeepSeek released a new generative AI model (R1) that analysts say is more cost-effective.
* DeepSeek claims to have spent $5.6 million to train its latest model (V3), while OpenAI spent over $100 million for GPT-4.
Impact on US AI Spending
* Analysts warn that US companies may be overinvesting in AI infrastructure.
* Hyperscalers like Microsoft (MSFT), Amazon (AMZN), and Google (GOOG) may need fewer data centers with GPUs due to the cost-effectiveness of DeepSeek's models.
Political Developments
* US President Donald Trump announced $100 billion in AI infrastructure investment through Stargate, a venture backed by OpenAI, SoftBank, and Oracle (ORCL).
* Meta (META) plans to increase capital expenditures to $65 billion in 2025.
Analyst Reactions
* CFRA's Angelo Zino: Investors should consider the innovation from China and question the current pace of AI infrastructure upgrades.
* Damindu Jayaweera of Peel Hunt: Nvidia's AI chip prices may face pressure but could also see increased demand beyond Big Tech.
* Bernstein's Stacy Rasgon: DeepSeek's reported spending on V3 may be underestimated, and the panic surrounding DeepSeek is overblown.
* William Stein of Truist Securities: There's no way to verify DeepSeek's claims about its training methods.
* Citi's Atif Malik: AI capex announcements by companies like Stargate indicate the need for advanced chips.
Upcoming Earnings Season
* Big Tech earnings season begins with Microsoft, Meta, and Tesla (TSLA) reporting earnings Wednesday.