Nasdaq and S&P 500 Sink on AI Shift
The landscape for AI development could be radically changing thanks to new information from DeepSeek that showed AI costs could be much lower.
News of potentially much lower AI development costs from Chinese company DeepSeek is affecting AI stocks across the board and driving down the Nasdaq and S&P 500 stock indices.
The little known company has created AI models that are more efficient and more powerful than those made by better known companies with much more money and more expensive chips. If these models turn out to be authentic and could be used to drive AI development for the future, then that could put a lot of the current AI marketplace at a disadvantage. The near monopoly that a few companies hold there could quickly slip away from them.
It may be too early to tell if these models will work out, but already the stock market is reacting, with the Nasdaq falling by 3.07% on Tuesday morning and the S&P 500 dropping 1.46%. However, the Dow Jones remains elevated with a 0.65% increase.
On the Dow Jones index, we are seeing gains from Johnson & Johnson, Procter & Gamble, Wal-Mart, Salesforce, Verizon, and many more conventionally well performing stocks that are not affected by the news on the tech side of the market. These stocks are still doing well off the hype of Donald Trump taking office, and they may continue to perform well this week despite the shifting environment for AI stocks.
Stocks to Watch
The news is most likely to continue affecting Nvidia, Microsoft, Apple, and other companies that rely heavily on AI usage. Nvidia (NVDA) fell nearly 17% after the news, so it appears that many investors are taking the DeepSeek models seriously. If the market does shift as a result of the new models, then Nvidia will lose much of its market share. They will continue to decline as other companies step in to offer cheaper and equally effective AI chips.
The question that is now posed to the AI market is whether there was ever any need for such expensive processing chips and development cost in the first place and if the market was being held back artificially for the sake of profit. If DeepSeek can come up with a much cheaper way to provide powerful AI programs, then many other companies can as well.
If the new models do not pan out, though, then we expect Nvidia to continue to dominate. DeepSeek has either opened Pandora’s box for the market, and it will never be the same. Or what has happened is just a flash in the pan, and things will go back to normal within a few days or weeks at most. In either scenario, investing further in NVidia and other AI-heavy stocks is likely not wise at this juncture.Â
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