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After traders sold off global technology stocks en masse Monday on news of a Chinese artificial intelligence competitor, some aren’t too concerned with DeepSeek’s seemingly meteoric rise.
Analysts at Wedbush, led by Dan Ives, said in a note Tuesday that they “view the DeepSeek fear across the tech world as in essence a ‘tech AI head fake’ that will be short lived as more details and analysis comes out about DeepSeek’s model and China resources.”
The sell-off led to a $1 trillion loss in market capitalization, with much of that driven by heavy bleeding in the tech sector. Nvidia (NVDA-5.05%) alone, which closed down 17% on Monday, shed $600 billion in market value — the largest single-day loss of any company in U.S. history. It ended the day with a share price of $118.68, bringing its market cap to $2.9 trillion.
Shares of the AI chipmaker were up 2% in pre-market trading. Contracts for major U.S. indices were relatively flat early Tuesday.
Traders fled the tech sector in response to Chinese firm DeepSeek’s announcement last week that it launched a model that rivals OpenAI’s ChatGPT and Meta’s (META+0.60%) Llama 3.1 — and which rose to the top of Apple’s (AAPL+0.29%) App Store over the weekend. Some analysts warned that DeepSeek’s model, which was built using less energy and with lower cost chips, could pose a threat to U.S. dominance of AI development.
DeepSeek in December launched a free, open source large language model (LLM), which it claimed it had developed in just two months for less than $6 million. It also said it built the model using lower capability chips from Nvidia, which could put pressure on the semiconductor darling if other firms move away from its premium offerings.
But Wedbush said it’s not worried about DeepSeek disrupting the planned $2 trillion in capital expenditures expected on AI in the coming years.
“DeepSeek created an awesome LLM model (and credit to its software developers) however this Chinese AI small lab/LLM model is not bringing down the entire US tech ecosystem with it,” the analysts wrote.
“Just like Temu was the ‘Amazon (AMZN-0.33%) model destroyer’ a few years ago... Amazon’s team adjusted and now look,” they said, referring it to the Chinese-origin e-commerce company that was feared to pose a major threat to competitors with its rock-bottom prices.