DeepSeek Causes NASDAQ Crash

The top story on the stock market today was all about AI and how the industry is going to evolve. It may even have political, economic and military implications.

US tech stocks took a deep dive today after a Chinese LLM Research company called DeepSeek announced it had created a better alternative to OpenAI, the leader in that important sector.

Dow, NASDAQ, and S&P drop today.
Dow, NASDAQ, and S&P drop today. Screenshot courtesy of Google Finance.

Many of the top AI companies such as Nvidia, Broadcom, ASML, and AMD crashed around 15% to 20% in share prices. It’s a shocking event for NASDAQ stocks and resulted in $600 billion in lost capitalization for Nvidia alone.  It was a global tech selloff.

It seems this one single company, only one year old has upset the US AI apple cart. It’s a big story.

Investors avoided the whole tech sector and dragged the S&P and Russell 2000 down too.

Biggest losing stocks today.
Biggest losing stocks today. Screenshot courtesy of Barchart.com
Top Losing Sectors Today.
Top Losing Sectors Today. Screenshot courtesy of CNBC.

Investors might be recalibrating their view of how big the total hardware and software market is, and about whether the current technology is worth pursuing. As you know hundreds of billions of dollars has been invested in AI chips, data centers, and software which may have been the wrong path.

This is a confusing moment for everyone now that current LLM’s have had their efficacy exposed or at least put in question. Tomorrow when markets open, the current bleeding may not be done. Some say the selloff was overdone, but this damage is deep, and all advanced technology will need to review their plans and buying decisions in light of this news.

The AI Scene Has Just Changed

The benefits for companies using AI solutions and microchips include lower software and hardware costs, reduced energy consumption, and faster processing. That translates to their software doing more for less. Did the AI stock prediction software companies get today’s events forecasted?

The obvious inference is that OpenAI and Nvidia may lose their monopoly-type advantage and that competitors are going to bring the cost of AI down. Dell, Oracle and Super Micro Computer fell hard today. So this might make Google, Amazon, Microsoft, etc. more profitable given their costs will fall.

It also threatens LLM AI model’s viability such as Gemini, which might not survive now.

The US tech companies are embarrassed about the apparent efficiency and efficacy of DeepSeek’s computing software.  And the Democrat party is humiliated with Joe Biden’s decision to not to allow China to acquire Nvidia’s leading edge 9-nano, Blackwell processing units.  China has apparently adapted and worked harder to find a better LLM that offers all the aforementioned benefits.

Deep Seek AI LLM

Who knows whether this is a lark, however some experts believe DeepSeek’s solution is real and others have used it and are really impressed with the quality it returns (via text prompts).  Tests show it’s speed is better than Open AI and they did it outdated, inferior microchips. The AI chip ban then has resulted in China trying harder, and they likely put more effort into AI software and build on market belief in DeepSeek and other AI software systems they can provide for industry and business.

It likely won’t affect the sales of Nvidia’s chips or AMD’s chips.

In an interview Seana Smith of Yahoo Finance today, Bernstein’s Stacy Rasgon characterized the market’s reaction as “overblown, telling me the development of DeepSeek doesn’t spell out “doomsday for AI infrastructure.

I am not of the belief that we’re anywhere close to the cap on compute needs for artificial intelligence,” Rasgon said. “I’m of the belief that if you’re freeing up compute capacity, it likely gets absorbed … We’re going to need innovations like this if you’re going to be able to keep things going.” – from Yahoo Finance.

However, Nvidia still sells the best chips so when you combine that with a new more efficient LLM (7 billion parameters vs 700 billions parameters), it can achieve significant cost savings for AI companies. It seems less really is more.

The whole story here surrounding Deepseek’s capabilities, opportunities and market value will play out in the next few months as more is known.

And as it does, the US tech companies and Wall Street will review and clarify their perspective of where AI is headed and who is able to deliver the best solutions.  Although the cheaper Deepseek solution offers lower costs and faster speeds, it doesn’t mean 2nd class AI chips are still desirable.

Deeseek uses less computing power so it’s difficult to believe it can achieve the depth and accuracy of openai’s model. We’ll see Openai and Nvidia respond soon.

Quality is quality in hardware (AI Chipsets) even if the demand picture has suddenly gone down a little. We should remember that better AI LLM models actually could spawn more investment in AI solutions.  And almost all tech startups whether in real estate, travel, or finance must utilize AI.  They might all be willing to dive into it and force practical results and real revenues. Today the major AI stocks took a dive, but they remain the heart of technology and are likely the best stocks to buy right now.

See more on the NASDAQ forecast, stock market crash and 5 year stock market predictions.

 

 

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