AI Breakthrough Sparks Market Volatility
Nvidia Shares Rebound After Record-Breaking Sell-Off
Nvidia’s stock price surged in premarket trading on Tuesday, recovering from a staggering 17% plunge on Monday that wiped out over $595 billion from the company’s valuation. The chipmaker’s rebound was initially strong, with shares up around 3%, but gains were trimmed as the official market open approached.
The AI Bubble Bursts?
Monday’s sell-off sent shockwaves across the tech industry, with the Nasdaq Composite dropping 3%. The catalyst was the emergence of Chinese startup DeepSeek, which released an open-source large-language model that reportedly outperformed OpenAI’s in various tests. The model’s development cost was a fraction of the billions of dollars major U.S. tech companies are spending on AI, sparking fears of an AI stock bubble bursting.
Nvidia’s Response
Nvidia, a leader in the AI trade due to its high-powered chips, praised DeepSeek’s R1 model as “an excellent AI advancement.” The company emphasized that the model demonstrates how new AI models can be created using widely-available models and compute that is fully export control compliant.
Wall Street Analysts Weigh In
Most Wall Street analysts stood by Nvidia after the sell-off, with none downgrading the stock thus far. Some even see the DeepSeek developments as a long-term positive for AI. Barclays analyst Raimo Lenschow noted that more powerful language models that can run at a fraction of the original cost estimates will accelerate genAI adoption across the software universe.
Mixed Reactions
Not all analysts were optimistic, however. Morgan Stanley’s Joseph Moore trimmed his price target on Nvidia to $152 from $166, citing the potential deflationary impact of the DeepSeek release on the AI industry.
The Future of AI
As the AI landscape continues to evolve, investors are grappling with the implications of cheaper, more powerful language models. While some see this as a positive development, others are more cautious, highlighting the potential risks of export controls and reduced spending enthusiasm. One thing is certain – the AI trade is in for a wild ride.
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