The Vanguard Total Stock Market Index Fund ETF (NYSEARCA:VTI) dropped by more than 2% at the open and has been slowly regaining lost ground. However, price movements have been minimal since 10 a.m. Eastern as investors assess the recent damage to tech stocks.
DeepSeek has singlehandedly brought these markets to their knees. China’s AI solution is competitive with OpenAI, and the company claims that it operates at a fraction of the cost.
So what
A key reason AI stocks have boomed is because investors and corporations accepted a long time ago that AI infrastructure is supposed to cost a lot of money. Mark Zuckerberg recently touted that Meta Platforms (NASDAQ:META | META Price Prediction) will spend $60-$65 billion on AI this year.
Big budgets from big tech companies have generated quite the buzz around AI stocks. However, if tech companies can get the same AI output at a fraction of the cost, it would put serious pricing and margin pressure on AI leaders like Nvidia(NASDAQ:NVDA) and Broadcom (NASDAQ:AVGO).
VTI allocates 35.1% of its assets in the tech sector, and that includes a 5.5% stake in Nvidia. Tech ETFs with more exposure to Nvidia have been hit harder, especially the iShares Semiconductor ETF (NASDAQ:SOXX), which is down by roughly 10% today.
Now what
DeepSeek can change how investors and corporations view artificial intelligence budgets. It’s possible that corporations like Nvidia and Broadcom lose their pricing power and become vulnerable to major corrections. In that case, today’s drops could be just the beginning.
However, it’s important to take this market reaction with a grain of salt. DeepSeek’s team claims that they spent less than $6 million on building their software. However, some industry experts have questioned this claim. Alexandr Wang, CEO of Scale AI, believes DeepSeek has approximately 50,000 H100 Nvidia chips.
Elon Musk also questioned DeepSeek’s claim when responding to one of Marc Benioff’s tweets. He said that he doesn’t take the claim seriously that DeepSeek operated on a shoestring budget.
China also recently announced a $140 billion AI investment, so there’s still a need for substantial AI investments.
The market reaction seems overblown, but it is a reminder that competitors can take market share and put pressure on valuations.
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