China's AI Startup Triggers Tech Sell-off
Key Takeaways:
* Nvidia (NVDA) stock plummets 16.9% on concerns over DeepSeek's open-source language model.
* Nasdaq (^IXIC) closes down 3%, with tech heavyweights Microsoft (MSFT) and Alphabet (GOOGL) dropping 2% and 4%, respectively.
* Market sell-off may be overblown, according to analysts.
* More efficient AI models could expand usage, driving growth for companies.
* Broader market outlook remains constructive, despite correction fears.
Nvidia's Steep Decline
Industry giant Nvidia's stock experienced a significant loss following news of DeepSeek's potential competition. The chipmaker's market capitalization decreased by a staggering $589 billion. Other chip stocks, including Broadcom (AVGO) and Lam Research (LRCX), also faced declines.
Analysts Advocate for Calm
Despite the initial panic, top analysts believe the market's reaction may be excessive. Bernstein's Stacy Rasgon suggests that the development of DeepSeek does not signal the end for AI infrastructure. Futurum's Daniel Newman echoes this sentiment, citing the Jevons Paradox, which predicts that efficiency gains in technology lead to increased usage.
CEO Commentary
Microsoft CEO Satya Nadella has also voiced support for this view, stating that AI efficiency will result in a surge in its adoption. Rasgon adds that spending on AI continues to rise, suggesting that the sell-off may have been premature.
Market Recovery
The initial panic subsided somewhat as the session progressed. Microsoft, Amazon, and Meta all made gains, offsetting some of the earlier losses. Principal Asset Management's Seema Shah downplays correction fears, citing a supportive macro environment and the potential productivity benefits of AI advancements.
Overall Market Impact
The Nasdaq closed with a 3% decline, while the S&P 500 dropped by 1.5%. However, the Dow Jones Industrial Average (^DJI) managed to reverse its earlier losses and ended the day up 0.65%.