Nvidia and other artificial intelligence chip stocks regained lost ground on Tuesday after Monday's ugly sell-off sparked by news related to China's DeepSeek.
DeepSeek claims to have created an AI model that matches those of U.S. rivals like OpenAI but at a fraction of the cost by using less-powerful chips.
President Donald Trump characterized the DeepSeek news as a "wake-up call" to U.S. tech firms.
OpenAI Chief Executive Sam Altman said DeepSeek's RI model is "impressive," adding that it is "legit invigorating" to have a new competitor.
On Monday, AI chip stocks tumbled as Wall Street analysts considered the implications of the DeepSeek news. The big question is whether it will cause hyperscale cloud computing service providers to rethink their expensive data center buildouts.
The DeepSeek news is sowing seeds of doubt in the "bigger is better" approach that has fueled the AI race to date, Deutsche Bank analyst Adrian Cox said in a client note.
"You don't need a Tesla Model X to drive round the corner to pick up a pint of milk. A Chinese BYD may do the job just as well," Cox said.
On the stock market today, Nvidia stock and other AI-related stocks rebounded somewhat.
Nvidia stock rose 8.9% to close at 128.99 on Tuesday. However, on Monday, Nvidia shares plunged 17% for the biggest one-day loss in market capitalization ever for a single stock ($560 billion).
In a statement about DeepSeek's new model, Nvidia called it an "excellent AI advancement." It added that DeepSeek's approach will still require "significant numbers of Nvidia GPUs (graphics processing units) and high-performance networking."
DeepSeek News Is Worse For OpenAI
DeepSeek's advancements are a negative for OpenAI and not as bad as assumed for Nvidia, Robert Maire, president of consulting firm Semiconductor Advisors, said in a client note.
That's because DeepSeek's innovations are related to software and a better algorithm, not chips and computer hardware, he said.
"We don't think AI players are going to start canceling their Nvidia orders any time soon, nor do I think the current sold-out condition will change any time soon," Maire said. "We would, however, imagine that they might rethink their algorithmic approach or at least try to figure out the alleged magic in DeepSeek."
Other analysts concurred, noting that if DeepSeek could achieve what it did with inferior processors imagine what such AI models could do with cutting-edge processors.
"Historically, new technology innovation cycles (especially compute efficiency) have driven increased proliferation/demand (Jevons paradox) which has resulted in more/higher value semiconductor demand as well," JPMorgan Harlan Sur said in a client note.
Sur rates Broadcom, Marvell and Nvidia stock as overweight, or buy.
Nvidia Stock Buying Opportunity?
Wedbush Securities analyst Daniel Ives called DeepSeek "the Temu of AI," referring to the ultracheap China-based e-commerce firm.
"We 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," Ives said in a client note. He compared it to how Amazon.com quickly recovered from the perceived threat posed by Temu.
Ives views the sell-off in AI stocks on Monday as a "golden buying opportunity" for Nvidia stock and other players.
Other AI chip stocks rebounding from Monday's crash included Astera Labs, Broadcom, Marvell Technology and Taiwan Semiconductor Manufacturing.
On Tuesday, Morgan Stanley analyst Joseph Moore trimmed his price target on Nvidia stock to 152 from 166 but kept his overweight, or buy, rating. He also cut his price targets on Astera Labs, Broadcom, Marvell and Micron Technology.
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