Investors are navigating the implications of DeepSeek's recent advancements in artificial intelligence, particularly as they relate to the software industry. The initial version of the DeepSeek model, which cost less than $6 million to build, stands in stark contrast to the billions spent by major U.S. tech companies on AI development. This has raised questions about the potential long-term benefits and drawbacks of such developments. Meanwhile, Nvidia shares experienced a volatile session, rebounding slightly in premarket trading on Tuesday after a significant loss.
The emergence of Chinese startup DeepSeek has sparked fears of a possible AI stock bubble burst. On Monday, Nvidia stock plunged 17%, marking the largest single-day market cap decline on record, with more than $595 billion wiped from the company's valuation. As traders reassessed the situation on Tuesday morning, Nvidia shares traded higher in the premarket.
A spokesperson from Nvidia praised DeepSeek's R1 model as "an excellent AI advancement," highlighting its open-source model's performance, which reportedly surpassed that of OpenAI in various tests. This development emphasizes evolutionary innovations in AI, with some aspects potentially being deflationary.
"DeepSeek's work illustrates how new models can be created using that technique, leveraging widely-available models and compute that is fully export control compliant." – Nvidia spokesperson
Market analysts have weighed in on the situation. Barclays analyst Raimo Lenschow noted the need for investors to distinguish between the potential benefits and drawbacks of DeepSeek's impact on the software industry.
"We think investors need to differentiate between the impacts around potential benefits and drawbacks of DeepSeek for the software industry. More powerful LLM models that can run at a fraction of the original cost estimates (if confirmed) will mean that genAI adoption should come easier … and hence, faster and broader across the software universe," – Barclays analyst Raimo Lenschow
Nvidia's decline has not led to downgrades from Wall Street analysts, suggesting continued confidence in the company's prospects despite recent market fluctuations. Morgan Stanley's Joseph Moore highlighted concerns about market reactions potentially leading to export controls or reduced spending enthusiasm, yet he remains positive about Nvidia's long-term outlook.
"The DeepSeek release highlights evolutionary innovations in AI, some of which may be deflationary. That said, the stock market reaction is probably more important than the cause, and could bring further export controls or reduce spending enthusiasm; trimming PTs but remain positive," – Morgan Stanley's Joseph Moore