Nvidia shares rebounded Tuesday, rising 8.8% after plunging nearly 17% the previous day. The sharp drop on Monday was Nvidia’s worst since the 2020 COVID crash.
Last week's podcast warned of a correction in the bubble of the Magnificent 7 stocks….saying at valuations like these anything can go wrong!!
https://t.co/T9d3okgH0xThis week, here it is….https://t.co/iRHVPYNNl3
— David McWilliams (@davidmcw) January 27, 2025
Other AI-related companies also steadied, with Broadcom rising 2.6% and Constellation Energy picking up 1.4% after dropping nearly 21% on Monday.
The tech sector’s volatility is partly driven by new developments in AI. A Chinese company announced it developed a large language model at a fraction of the cost of existing models. This has raised questions about future spending on AI chips and electricity.
Nvidia share price: DeepSeek makes a deep $600 bn cut in AI chip-maker's market cap, pushes it behind Apple, Microsofthttps://t.co/AeoMzm8bos
— ET NOW (@ETNOWlive) January 28, 2025
AI-related stocks have been some of Wall Street’s biggest stars in recent years. They have soared on expectations of continued big spending. However, there is growing criticism that the stock prices had risen too high, too quickly.
Editor's Take | Big Tech selloff: DeepSeek triggers an AI ecosystem shakeup, sinking Nvidia stock.
What caused the selloff, and what does it mean for global & local markets? @nikunjdalmia explains!#BigTech #DeepSeek #Markets #AI pic.twitter.com/gij1mtTlks
— ET NOW (@ETNOWlive) January 28, 2025
The uncertainty centers on whether new, cost-effective AI developments might reduce the anticipated growth in spending.
???? Fascinating response from President Trump to China’s DeepSeek moment – none of the security data or censorship concern about TikTok in previous Congress – “a wake up call” a “positive” suggests it will now be cheaper to use AI https://t.co/oTkGTxJKOw
— Faisal Islam (@faisalislam) January 28, 2025
“If AI becomes less expensive to use, we think businesses will adopt it more quickly,” said James Egelhof, chief U.S. economist at BNP Paribas. We think this acceleration in adoption could mean a rise in software investment that offsets — or even dwarfs — any deceleration in spending on data center structures, hardware, and related investment.
Elsewhere, stocks outside of the AI arena showed mixed results.
Royal Caribbean surged 12% after the cruise operator surpassed analysts’ profit expectations for the end of 2024. The company also provided an optimistic profit forecast for the first quarter of 2025. JetBlue Airways, however, lost 25.7%, despite reporting a smaller-than-expected loss for the latest quarter.
The company expects its costs, excluding fuel, to rise more quickly than its revenue at the start of 2025. Later this week, profit reports from Apple, Meta Platforms, Microsoft, and Tesla are highly anticipated. The S&P 500 rose 55.42 points to 6,067.70.
The Dow Jones Industrial Average added 136.77 to 44,850.35, and the Nasdaq composite rallied 391.75 to 19,733.59. In the bond market, Treasury yields remained relatively steady. The yield on the 10-year Treasury was at 4.53%, unchanged from late Monday.
Yields have been rising recently as traders adjusted their expectations for Federal Reserve interest rate cuts this year. Globally, stock markets were mixed. Japan’s Nikkei 225 lost 1.4%, weighed down by a 5.2% drop in SoftBank Group Corp.
stock.
Nvidia stock faces continued challenges
Fuji Media Holdings rose 3% following a lengthy news conference addressing a sex scandal involving its top executives.
Nvidia stock is experiencing another round of sell-offs as of Wednesday’s trading. The stock was down 5.9% by 1:26 p.m. ET today, amidst a broader market decline with a 0.5% drop in the index and a 0.8% pullback for the Nasdaq Composite. The primary catalyst for today’s decline appears to be concerns surrounding the recently released DeepSeek R1 artificial intelligence (AI) model.
Investors are worried that the new AI system may signal a weaker demand outlook for Nvidia’s advanced AI processors. The R1 model, developed with a smaller number of less powerful processors compared to leading AI systems from companies like OpenAI and Microsoft, is reportedly more efficient in terms of processing power and cooling needs. It is also delivering performance that matches or exceeds OpenAI’s latest ChatGPT system, which had been the benchmark for generative AI and reasoning systems.
Adding to Nvidia’s challenges, the DeepSeek R1 story has escalated geopolitical tensions between the U.S. and China. Sen. Josh Hawley has introduced a bill that would end cooperation between the two countries on AI and prohibit U.S. investment in Chinese AI initiatives, further complicating the landscape. Despite these bearish signals, some analysts believe that this could be an opportunity to buy Nvidia stock.
While DeepSeek R1 might represent a significant development in AI efficiency, it’s too soon to determine if it will drastically affect the demand for Nvidia’s advanced graphics processing units (GPUs). Crucial details about the R1 model’s development and processing requirements remain unclear, and some speculate that information about its efficiency may be exaggerated. High-performance GPUs are still considered essential for creating and running advanced AI systems, as evidenced by substantial purchases of Nvidia processors and robust AI infrastructure investments from tech giants like Meta Platforms.
The geopolitical dynamics between the U.S. and China are expected to continue influencing Nvidia and other leading AI stocks, potentially creating more volatility. Nevertheless, the ongoing AI race presents a powerful long-term catalyst for Nvidia stock. While uncertainty looms over Nvidia’s future, today’s dip might present a worthwhile buying opportunity for investors willing to navigate the current market conditions.
Nvidia (NVDA) shares are falling by 4% today after Alibaba (BABA) reported that its new AI model performs better than the offering from Chinese start-up DeepSeek. DeepSeek’s model, which reportedly performed better than OpenAI’s product in several areas, cost only about $5.6 million to train. Alibaba’s news may be renewing fears that Chinese companies have discovered ways to launch highly advanced AI models without using Nvidia’s recently developed, very expensive chips.
This concern was first ignited by news from DeepSeek earlier this week. Called Qwen 2.5-Max, Alibaba’s model “demonstrated significant advantages across most benchmarks” relative to Meta’s (META) Llama-3.1-405B, according to Alibaba. Llama-3.1-405B was launched last July.
Alibaba added that Qwen 2.5-Max outperforms DeepSeek V3 in several benchmarks. Since the U.S. government has heavily restricted China’s access to America’s most advanced AI chips, the market may fear that Alibaba created Qwen 2.5-Max using relatively old, inexpensive GPUs from Nvidia. As a result, Alibaba’s announcement could be reinforcing concerns about Nvidia’s outlook.
In the last month, Nvidia shares have sunk 8%, and they are down 11.5% over the past three months.
