Nvidia stock: AI chip makers fall on DeepSeek news
A news report that Chinese artificial intelligence lab DeepSeek has developed an AI model that rivals US models but at a much cheaper cost sent shockwaves through AI chip stocks on Monday. Nivea (NVDA) stocks and others fell.
DeepSeek developed its AI system without sophisticated foreign processors, which China is prevented from acquiring due to the US export ban. The Chinese company says it built the system for less than $6 million, compared to billions spent by rivals. It’s much cheaper to operate than US rivals like OpenAI. Meta forums (META).
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The news comes after US venture firm Stargate announced plans to invest up to $500 billion in AI infrastructure over the next four years.
Silicon Valley venture capitalist Marc Andreessen describes DeepSeek-R1 as “The AI Sputnik momentIt marks the year 1957 when the Soviet Union launched the first man-made Earth satellite into space.
A Wired The article notes that DeepSeek is focused on “software-driven resource optimization” because it doesn’t have access to the latest AI processors from Nvidia and others.
DeepSeek has come up with more efficient methods for training its models, such as using custom communication schemes between chips, reducing the size of fields to save memory, and using a hybrid approach to models, according to the Wired article.
In morning trading on the stock market today, Nvidia stock fell 12 percent to 125.24. Among its AI chip peers, Broadcom (AVGO) decreased by 12% to 215 Marvel technology (MRVL) down 14 percent to 106.70. Advanced Micro Devices (AMD) retreated 6 percent to 115.79.
Other AI-related chip stocks also fell on Monday. Chip foundry Taiwan Semiconductor Manufacturing (TSMIt slipped 9% to 201.22. Fresh IPO stock. Astera Labs (Fire) fell 13 percent to 100.38.
It is possible to pause in the costs of AI infrastructure
The DeepSeek news could lead to a halt in AI infrastructure spending as top cloud service providers rethink their capital spending plans, Evercore ISI analyst Amit Darianani said in a client note Monday.
“We think there may be some risk in the near term.” Given a cheaper alternative, should we spend more on capex? “Over time, this could be the case where cloud/enterprises do more AI-centric tasks and move from text to image to video,” Darinani said.
Jordan Klein, a trading desk analyst at Mizuho Securities, said the DipSec news had created a “sell first and ask questions later” type of reaction among investors. On the other hand, avoid buying AI stocks on the reserve.
“The AI business and narrative is this crowded and the downside is that it may take some time to fully play out,” Klein said in a client note Monday.
He said there was misinformation about the cost of developing DeepSeek’s AI model and what it accomplished.
Nvidia stock, other AI chip makers on tech leaders list
Bernstein analyst Stacey Rasgon said the DeepSeek news doesn’t spell doomsday for AI builds.
“The panic in the Twitterverse over the weekend appears to have been overblown,” Rasgon said in a client note Monday. “As many of the (occasionally hysterical) hotshots we’ve seen say, the implications range from ‘really exciting’ to ‘this is the death knell of the AI infrastructure complex as we know it.'”
Meanwhile, demand for AI chips and data centers is still growing, Rasgon said.
Investments are still accelerating. “Of all the news from DeepSeek, Meta last week has significantly increased our capex for the year. We’ve got Stargate’s announcement. And China’s trillion yuan (about $140 billion) AI spending plan. We still need it. And get more chips.”
Rasgon reiterated its buy rating on Nvidia stock and Broadcom stock.
Nvidia stock is on the IBD Tech Leaders list along with Astera Labs, Broadcom, Marvell and Taiwan Semiconductor.
Patrick Seitz at X, formerly of Twitter, at @IBD_PSeitz For more stories on consumer technology, software and semiconductor stocks.
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