In the unlikely event you missed the news earlier this week, the tech and AI industries got a vicious jolt when it was revealed that Chinese AI developer DeepSeek had launched a GPT that was comparable in performance to OpenAI’s ChatGPT, but created with far less robust chips costing a fraction of the price.
The biggest dump clearly was on the valuation side. As we’ve seen repeatedly over the past few years, investors are more than willing to ignore valuations in the near-term as long as the promise of long-term revenue and earnings growth is still intact. Once that goes away, the justification for higher multiples goes away too. NVIDIA investors learned that the hard way on Monday.
The week’s trading activity following NVIDIA’s plunge could be incredibly telling. Throughout this market, especially with tech stocks, we’ve seen dip buyers moving it at any sign of weakness. That’s been a big contributing factor for why the S&P 500 over the past two years has rarely experienced even a 5% pullback. Even when it has, the recovery time hasn’t been measured in months. It’s been measured in weeks.
NVIDIA’s price action this week suggests that the dip buyers may not be returning this time around.
Sure, NVIDIA made a nice recovery on Tuesday, but it’s since given a lot of it back. We should give this at least a couple more weeks to gauge what the longer-term reaction is, but the longer it hovers around its current range, the more it suggests that this is a fundamental change in valuing one of the AI industry’s biggest perceived winners.
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