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Panic is hitting Wall Street on Monday morning, with major semiconductor stocks like Nvidia (NVDA) and Broadcom (AVGO) down more than 10%. The reason for the chaos is DeepSeek, a new artificial intelligence (AI) model released by a Chinese startup.
Most troubling to investors is the fact that its creators say that DeepSeek cost just a fraction of what OpenAI, Alphabet (GOOGL) and others have spent on developing and training models. The price tag circulating for DeepSeek is $5.6 million, compared to $50 billion in annual AI spending planned at OpenAI.
Investors were already worried that Big Tech companies will struggle in 2025 as they work to justify their spending on AI, creating a headwind for Nvidia stock. The unveiling of DeepSeek has only exacerbated those fears and created panic that an unknown startup could disrupt AI as we know it.
But one analyst, Stacy Rasgon of Bernstein, isn’t giving up on semiconductor stocks. In fact, the analyst has three reasons why DeepSeek isn’t “doomsday” for Nvidia and its peers.
About Nvidia Stock
Nvidia (NVDA) is the star of the AI story on Wall Street, recently surpassing Apple (AAPL) as the most valuable company by market capitalization and generating incredible share-price returns. With a roughly $3.5 trillion valuation, shares are up 108% over the past 52 weeks and an even more staggering 524% over the past two years.
The company supplies its graphics processing units (GPUs) for various AI purposes, from training large language models (LLMs) to powering data centers. Its software and cloud services business also cater to AI, with solutions like its CUDA programming model that aims to make AI development easier.
Nvidia stock is down more than 11% in morning trading on Jan. 27, but it is still trading more than 100% above its 52-week low.
3 Reasons Bernstein Isn’t Sweating DeepSeek
In a note to clients, Bernstein analyst Stacy Rason wrote that “Is DeepSeek doomsday for AI buildouts? We don’t think so.”
Building on this, he listed three reasons why. Firstly, Rasgon pushes back on the $5 million price tag associated with DeepSeek, saying that “DeepSeek DID NOT ‘build OpenAI for $5M.’ He emphasizes that DeepSeek’s V3 model is much smaller than OpenAI’s creations, and therefore needed less computing power to build. He does acknowledge though that it can provide similar or better results than other models. Secondly, Bernstein says that he doesn’t think DeepSeek’s AI models ”are miracles." And third, he simply says that “the resulting Twitterverse panic over the weekend seems overblown.”
With this in mind, Bernstein maintained its “Outperform” ratings on Nvidia and Broadcom.
Is Nvidia Stock a Buy Now?
What does the rest of Wall Street think? And how should you approach Nvidia given the panic-driven selloff on Monday morning?
The stock has a “Strong Buy” consensus rating from 43 analysts and an average price target of $176.90. At its current price, that represents roughly 40% of upside potential. Other analysts also agree that the panic is overblown. As my colleague Elizabeth Volk wrote this morning, Cantor Fitzgerald also maintains that DeepSeek isn’t cause for concern. Instead, the “innovation” represented by the upstart model just shows that more computing power will be needed over time as companies keep pushing for new advancements.
For investors then, DeepSeek is definitely a reminder of what is possible and perhaps a wake up call on Wall Street. However, down 11%, it might be a good opportunity to snap up Nvidia shares at a relative discount.
