Nvidia Shares Rebound in Premarket After Monday's Historic $595 Billion Sell-off Amid AI Developments

Following a massive selloff that saw Nvidia's stock plunge 17% on Monday, resulting in a $595 billion reduction in the company's valuation and the biggest single-day market cap decline on record, the company's shares experienced a rebound of approximately 3.7% in premarket trading on Tuesday. This resurgence represents a reassessment by traders regarding the potential impact of a significantly cheaper-to-build large-language model on the artificial intelligence trade.

DeepSeek's Impact on AI Trade

The steep sell-off on Monday reverberated across the broader tech industry, causing the Nasdaq Composite to drop 3% as fears grew that an AI stock bubble could burst due to the emergence of Chinese startup DeepSeek. This company recently released an open-source model that reportedly outperformed OpenAI's in various tests. DeepSeek also claimed that the initial version of this model cost less than $6 million to build, starkly contrasting the billions of dollars being invested by major U.S. tech companies in AI.

Nvidia's Response and Wall Street's Stance

Despite the challenges posed by DeepSeek's advancements, Nvidia, a key player in the U.S. AI trade due to its high-powered chips, acknowledged the significance of DeepSeek's model. An Nvidia spokesperson referred to DeepSeek's R1 model as "an excellent AI advancement," highlighting its compliance with export control regulations and the potential for creating new models using widely-available resources.

In the wake of the sell-off, the majority of Wall Street analysts maintained their support for Nvidia, with no downgrades reported thus far. While some analysts perceive the developments from DeepSeek as a long-term positive for the AI sector, others, like Barclays analyst Raimo Lenschow, emphasized the need for investors to differentiate between the potential benefits and drawbacks for the software industry. Lenschow pointed out that more powerful large-language models (LLMs) that can be developed at a fraction of the original cost estimates, if confirmed, could expedite the adoption of generative AI across the software landscape.

Despite the challenges posed by DeepSeek's model, Morgan Stanley's Joseph Moore reiterated his overweight rating on Nvidia's stock but adjusted his price target to $152 from $166. Moore acknowledged the evolutionary innovations in AI highlighted by the DeepSeek release, noting that some of these advancements may have deflationary effects. However, he emphasized that the stock market's reaction holds significant importance and could potentially prompt further export controls or diminish the enthusiasm for spending, leading to a trimming of price targets while maintaining a positive outlook.