Many AI-related stocks came under intense pressure today. Investors reacted negatively to recent reports that a Chinese start-up called DeepSeek has been able to develop an AI model very inexpensively.
Among the biggest casualties in today’s trading was AI bellwether NVIDIA (NVDA), which declined 17%. The tech heavy Nasdaq Composite Index was down approximately 3%.
More than a dozen other stocks within the S&P 500 Index saw double digit declines, which led to an approximate 1.5% decline in the index. It is interesting to note, however, that a majority of stocks within the S&P 500 in fact traded higher today.
The market action today may be unsettling, but we encourage investors to consider the following key points:
(1) We do not have a perfect understanding of what resources have gone into DeepSeek. Take reports out of China with a grain of salt.
(2) It is not time to give up on AI. The possibility of a productivity breakthrough in AI has both positive and negative implications for stocks, even those directly tied to the AI build-out.
(3) Always be diversified. Today’s action provides a healthy reminder of the need to stay diversified across industry sectors and investment themes.
What we know about DeepSeek
DeepSeek is a Hangzhou, China based AI start-up that was formed in 2023. In a recent technical paper, engineers at the company claimed that, for a mere $6 million, they were able to create an open-source AI model that is competitive with products like OpenAI’s ChatGPT.
The backstory here is that China has faced legal restrictions on importing NVIDIA Graphic Processing Units (GPUs). As a result, firms like DeepSeek have had to figure out process changes that allow them to do more with less.
The accuracy of the $6 million figure—and whether or not it properly accounts for all resources that went into the project—is impossible to confirm…
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