While China's advances in generative AI may have shaken Wall Street's confidence, Matt Caruso says the news could unleash even more innovation around the emerging technology.
He says the pullback earlier this week among generative AI stocks is normal for highly innovative sectors, with markets underestimating how intense competition can be an immense positive for the industry, Caruso, president at Caruso Insights, says.
"I think the 90s is a great playbook," Caruso told Investor's Business Daily's "Investing with IBD" podcast. "Everyone should be looking at all the leading stocks, how it unfolded, and all the different technologies built."
Audio Version Of Podcast
Caruso says what made trading tech stocks in the 90s unique was how the winners of the past were not necessarily the winners of the future. AOL, for instance, was an early high-flyer until it was surpassed by names like Google and Microsoft. He also points out that major innovations tend to create entirely new industries: the internet gave rise to dot-com and online businesses, while smartphones led to the gig economy.
"Every time this technology comes out that is a new platform, it enables so much innovation on top of it, it's unbelievable," he said.
Back To The Future In Generative AI Stocks
Last week's announcement of DeepSeek's capabilities rattled AI stocks like Nvidia, Meta Platforms and Google parent Alphabet, all of which made big bets on generative AI technologies. DeepSeek is reportedly as capable as leading generative AI models from OpenAI, Google and Meta, but requires less computing power and are consequently far cheaper.
It remains difficult for China to obtain the world's most advanced silicon, like the special processors used in generative AI applications, as export restrictions from the U.S. and other countries have remained. And while DeepSeek's actual cost and capabilities are still difficult to independently verify, its creation remains impressive given China's limited access to computing hardware.
Caruso says these constraints may have fueled creativity and competitiveness, which can only benefit the burgeoning generative AI sector long-term. "You have to have a healthy dose of skepticism, but you also have to have a dose of looking at how the chessboard can move in multiple steps," he said.
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