Nvidia Stock Recovers After Massive Loss Driven by AI Model Concerns
Shares of Nvidia (NVDA) surged in premarket trading on Tuesday, recovering from a 17% decline on Monday prompted by concerns over a new cost-effective AI model from Chinese startup DeepSeek.
DeepSeek's model, reportedly trained with significantly fewer AI chips, raised concerns that U.S. firms were overspending on AI infrastructure. This led to speculation that Nvidia's high GPU prices could face pressure and semiconductor demand could decline.
Nvidia's market cap plunged by $589 billion on Monday, marking the largest single-day loss in stock market history. The sell-off also impacted the broader tech sector, with the Nasdaq dropping 3%.
Despite the initial reaction, Nvidia remained relatively unfazed, describing DeepSeek's model as an "excellent AI advancement."
Wall Street analysts expressed skepticism over DeepSeek's low training costs, suggesting that they do not fully account for the involvement of Meta's open-source AI model Llama.
However, analysts also acknowledged the potential for continued growth in AI spending, given the infancy of the technology. DeepSeek's model suggests that competitive AI applications can be developed using less compute power.
Nvidia shares pared gains after the market open, but still traded up slightly. The broader chip sector also recovered on Tuesday, with Broadcom (AVGO) showing modest premarket gains and a small increase post-open.