Nvidia Stock Plummets on AI Sell-Off Fears
Key Points:
* Nvidia's (NVDA) stock plunged 16.9%, wiping out $589 billion in market cap.
* Fears over a Chinese AI startup's cheaper language model sparked the sell-off.
* Nasdaq fell 3%, led by Nvidia's decline.
* Top analysts believe the market's reaction is exaggerated.
* A more efficient AI model could expand its use, driving EPS growth.
Analysis:
Nvidia's stock plummeted on Monday as investors panicked over the potential impact of a cheaper large language model from Chinese AI startup DeepSeek. The broader tech sector was also hit, with chip stocks and tech giants Microsoft (MSFT) and Alphabet (GOOGL) taking losses.
However, some analysts believe the sell-off may be overdone. Bernstein's Stacy Rasgon said the development of DeepSeek does not signal "doomsday for AI infrastructure." He believes that freeing up compute capacity could lead to increased innovation and AI adoption.
Futurum's Daniel Newman agreed, citing the Jevons Paradox, which states that increasing efficiency of a resource leads to increased consumption. He believes that a more efficient AI model could expand its use and drive revenue growth for AI-driven companies.
Microsoft CEO Satya Nadella also tweeted that as AI becomes more efficient, its use will soar.
Despite the initial shock, Wall Street's panic subsided somewhat as Microsoft and other Big Tech companies closed well above their lows. Principal Asset Management's chief global strategist, Seema Shah, downplayed correction fears, citing a constructive macro environment.
Market Performance:
* Nasdaq: -3%
* S&P 500: -1.5%
* Dow Jones Industrial Average: +0.65%