Nvidia Stock Recovers After Steep Decline Amid AI Chip Concerns
Nvidia (NVDA) shares soared 2.5% in premarket trading on Tuesday, attempting to recoup losses from a massive sell-off the previous day that wiped nearly $600 billion off its market cap.
The 17% plunge on Monday was triggered by investor concerns over a new, low-cost AI model developed by Chinese startup DeepSeek. Wall Street analysts expressed apprehension that DeepSeek's claimed cost savings, attributed to using fewer AI chips, could erode demand for semiconductors and pressure Nvidia's premium GPU pricing.
Nvidia's $589 billion market cap loss was the largest single-day decline in stock market history. The DeepSeek announcement reverberated across the market, driving the tech-heavy Nasdaq down 3%.
However, chip stocks began to recover on Tuesday morning. Broadcom (AVGO) gained 3% premarket after dropping over 17% at the start of the week, while Micron (MU) rose 1% after a 12% dip.
Nvidia downplayed the DeepSeek news, describing it as "an excellent AI advancement" in a Monday statement.
Wall Street analysts remained cautious, questioning the validity of DeepSeek's reported low training costs and their implications for AI stocks. JPMorgan analyst Harlan Sur and Citi analyst Christopher Danley noted that DeepSeek utilized a process called "distillation," relying on Meta's open source AI model Llama to develop its own. They argued that the cited spending figures did not fully account for the underlying costs.
Despite the skepticism, some analysts believe that DeepSeek's lower costs do not necessarily imply a decline in AI spending. Raymond James analyst Srini Pajjuri emphasized that DeepSeek lacks comparable compute resources to US hyperscalers and still managed to develop a competitive model.