Nvidia Stock Plunges on AI Fears, But Analysts Say Panic May Be Overdone
As the concerns over China's AI startup DeepSeek's development of a cheaper open-source large language model, the tech industry witnessed a sell-off. Nvidia (NVDA), the tech-heavy Nasdaq (^IXIC), led the decline, with its stock plummeting 16.9%, resulting in a record $589 billion loss in market cap.
The contagion spread across the broader technology sector, with chip stocks like Broadcom (AVGO), Lam Research (LRCX), KLA (KLAC), and Marvell (MRVL) taking a hit on Monday. Major players such as Microsoft (MSFT) and Alphabet (GOOGL) also faced declines of 2% and 4%, respectively, adding pressure ahead of fourth quarter earnings.
Amidst the market panic, top analysts believe the sell-off may be excessive. Bernstein's Stacy Rasgon described the reaction as "overblown," stating that DeepSeek's development does not spell "doomsday for AI infrastructure." He emphasized that the need for compute resources in AI is far from reaching its limit.
Futurum's chief strategist, Daniel Newman, echoed this sentiment, citing the Jevons Paradox. He believes that a more efficient model like DeepSeek will expand AI use, leading to increased revenue potential for companies. Microsoft CEO Satya Nadella also echoed the idea, stating that increased AI efficiency will drive its usage.
While the initial panic on Wall Street was evident, some optimism emerged as Big Tech names like Microsoft closed well off their session lows. Amazon and Meta also ended Monday with gains of 0.3% and 1.9%, respectively.
Principal Asset Management's chief global strategist, Seema Shah, downplayed correction fears, stating that the macroeconomic environment remains constructive for earnings across sectors. She highlighted that DeepSeek's potential benefits in driving global productivity could ultimately prove positive for the US economy.
The Nasdaq closed Monday with a 3% decline, while the S&P 500 (^GSPC) dropped 1.5%. The Dow Jones Industrial Average (^DJI), however, reversed earlier losses and ended up 0.65%.