NVDA, MSFT, TSLA impacted by DeepSeek!
On Mon, 27 Jan 2025, the US stock market experienced a significant crash, largely driven by the emergence of a new AI model from Chinese startup DeepSeek.
The unfolding event had a profound impact on the Magnificent Seven stocks, that included Apple , $Microsoft(MSFT)$, Amazon, $Alphabet(GOOG)$ , $Meta Platforms, Inc.(META)$ , $NVIDIA(NVDA)$ and $Tesla Motors(TSLA)$.
Below is a detailed look at how DeepSeek's AI model affected these stocks:
Rise of DeepSeek
DeepSeek, a relatively unknown Chinese AI startup, introduced an AI model that claimed to rival the capabilities of leading models from US companies like OpenAI and Meta.
What set DeepSeek apart was its cost efficiency; the model was developed at a fraction of the cost typically associated with such advanced AI technologies.
This revelation sent shockwaves through the market, as investors began to question the massive investments US tech companies had made in AI infrastructure.
Magnificent 7 - January 2025 performances
Magnificent 7’s Impact
1. Nvidia (NVDA)
Nvidia, the leading chipmaker for AI applications, saw its stock plummet by -16.86%.
The company's dominance in the AI hardware market has been challenged by DeepSeek's model, which used less expensive and less powerful chips.
This raised concerns about the future demand for Nvidia's high-performance AI chips.
Thursday as redemption day for Nvidia as its stock recovered marginally by +0.98%, to $124.91 per share. There’s still some way to go to reach the $149.43 peak, reached on 6 Jan 2025.
It must have been a humbling experience for CEO Jensen Huang.
Hopefully in future, he would not go about blabbing on other industry/technology and caused his peers’ quantum computing stocks to tumble.
2. Microsoft (MSFT)
Microsoft's stock also took a hit, dropping by around -6.18%. As a major player in the AI space, Microsoft faced investor skepticism about the sustainability of its AI investments in light of DeepSeek's cost-effective model.
On Wednesday, MSFT reported its quarterly earnings, after market closing. Its weaker guidance on current Q1 2025 met with Wall Street’s reaction.
Looks like the news about MSFT becoming a potential stakeholder of TikTok US, did not boost investors’ confidence in the tech stock.
3. Alphabet (GOOG)
Alphabet, the parent company of Google, experienced a decline of -4.03% on Monday.
The company's significant investments in AI were called into question, as DeepSeek's model demonstrated that similar capabilities could be achieved at a much lower cost.
With Thursday’s closing, GOOG managed to “recover” the lost suffered on Mon, 27 Jan 2025.
4. Meta Platforms (META)
Meta Platforms, which has been heavily investing in AI, saw its stock rose by +7.85% instead.
Although the company's ambitious AI projects, including its Llama model, faces new competition from DeepSeek's efficient and cost-effective AI model.
With a recovery momentum for Mag 7 stocks, META further strengthened by rising another +1.55% on Thursday, with investors reassessing its AI investments
5. Apple (AAPL)
Apple's stock (like Meta) also bucked the trend and managed to rise by +5.5% based on past 5 days’ performances, although it is still off its 26 Dec 2024 peak of $259.02..
The company benefited from the perception that smaller, more efficient AI models like DeepSeek's could enhance AI products in its devices, such as the iPhone 16.
6. Amazon (AMZN)
Amazon's stock did not fare well, it is one of Mag 7 stock that experienced continuous dip over past 5 trading days.
Amazon's extensive investments in AI-driven services and infrastructure will be scrutinized, in greater details, in light of DeepSeek's disruptive model.
Investors must have found value in its diversified business model because AMZN also built on its positive sentiments rising by a further +1.16% on Tuesday to $238.15, its 52-week high.
However profit taking follow suit, causing it to fall (net, net) on Thursday by a mild -0.22% to $234.64.
7. Tesla (TSLA)
Tesla, which relies on AI for its autonomous driving technology, saw its stock drop as well.
On Monday, it fell by -2.32% to $397.15 per share at closing time.
The emergence of a cost-effective AI model from DeepSeek raised questions about the future competitiveness of Tesla's AI-driven innovations.
On Tuesday, the EV maker made modest a recovery of +0.24%. Investors are staying on the sideline on the eve of its quarterly earnings announcement (after market closed).
The muted interest filter into Wednesday while traders wait for its quarterly earnings, announced after market closing.
Compared to estimates in my Tuesday post. (click here ! for details), the actuals quarterly earnings fell short of the forecasts.
By a stroke of miracle, Tesla rose on Thursday by +2.87%, with investors focused on bullish commentary from CEO’s vow to launch long-awaited cheaper models in the first half of 2025 and start testing an autonomous ride-hailing service in June 2025.
Broader Market Implications
The introduction of DeepSeek's AI model led to a broader sell-off in tech stocks, with the Nasdaq dropping over -2.02%.
Thankfully, confidence was partially restored on Thursday as funds houses managers were out in force, singing the same chorus of a market that has been “oversold” due to panic sets in. (see below)
When 4pm comes a calling:
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DJIA : +0.38% (+168.61 to 44,882.13).
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S&P 500 : +0.53% (+31.86 to 6,071.17).
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Nasdaq : +0.25% (+49.43 to 19,681.59)
Where Did Investors Go?
Investors flocked to safer assets, such as bonds, as they reassessed the valuations and future prospects of AI-driven companies.
On Thu, 30 Jan 2025, US 10 years treasury yields moved lower as gross domestic product (GDP) report came in weaker than expected, showing slow economic growth in the U.S. (see below)
With 10 years treasury yields at 4.529%, it is at the higher end of Fed funds rate of 4.25% to 4.5%.
The recent market's reaction highlighted the vulnerability of tech stocks to disruptive innovations and underscored the importance of cost efficiency in AI development.
Conclusion
DeepSeek's AI model has had a profound impact on the Magnificent Seven stocks, challenging the assumptions about (a) the cost and (b) scalability of AI technologies.
As the market continues to digest this development, it remains to be seen how US tech giants will respond to this new competitive threat.
The rise of DeepSeek serves as a reminder of the dynamic and rapidly evolving nature of the AI industry, where innovation can quickly reshape market landscapes.
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Do you think Nvidia will be able to dig deep and produce a “cheaper” AI chip soon ?
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Do you think all Magnificent 7 stocks will stage a recovery of sort regardless of PCE inflation numbers ?
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