THE WASHINGTON POST: Nvidia’s rally shows DeepSeek fears were unfounded a year later

A year ago, the Chinese startup DeepSeek freaked out the stock market with the idea that developing artificial intelligence was much easier and cheaper than everyone imagined. But 12 months later, that’s turned out to be largely a mirage so far.

DeepSeek erased a record $589 billion from Nvidia Corp.’s market value in one day after the company revealed an AI model thought to be comparable to those of OpenAI and Meta Platforms Inc. and developed at a fraction of the cost.

Nvidia’s double-digit plunge led the S&P 500 Index 1.5% lower, while the tech heavy Nasdaq 100 Index shed 3%. Even energy and utilities stocks like Vistra Corp. and Constellation Energy Corp., which benefit from the technology’s buildout, sold off.

Just 24 hours later, though, Nvidia shares rebounded, erasing some its losses as investors rushed to buy the dip. Over the following days and weeks, investor concern waned as reports showed that DeepSeek’s model wasn’t as much of a competitive threat as first feared.

“The initial reaction was ‘oh my God, this could be done way cheaper and these companies are in trouble, and Nvidia’s not going to be able to sell these expensive chips,’” said Eric Diton, president and managing director of Wealth Alliance. “Here we are a year later and that’s just obviously not true. Nvidia’s growth rate continues to just defy all logic.”

Shares of Nvidia, which contributed to the lion’s share of the S&P 500’s advance in 2025, are now up 58% since the DeepSeek selloff.

There was a “massive overreaction” to DeepSeek, said Google DeepMind Chief Executive Officer Demis Hassabis, at this year’s World Economic Forum in Davos, where the debate over whether China is a threat to tech in the US percolated. Even Marc Andreessen called DeepSeek “AI’s Sputnik moment” last year.

The knee-jerk reaction to DeepSeek was a stark reminder of an investing tenant: Innovation is ever-present and can quickly change the course of the market, especially when it comes to nascent tech.

“Technology moves incredibly fast,” said Eric Gerster, chief investment officer at AlphaCore Wealth Advisory. “One has to be a little bit nimble.”

One of the key fears raised by DeepSeek was that the billions of dollars in capital expenditures pledged by hyperscalers would be cut, hampering growth at Nvidia and other companies associated with building AI. Instead, spending has soared, with Meta, Microsoft Corp., Amazon.com Inc. and Alphabet Inc. expected to deploy roughly $475 billion for capital expenditures in 2026, according to the average of estimates compiled by Bloomberg.

Though investors have largely cheered rising capex budgets, there are worries about bottlenecks hindering development and the possibility of an overbuild. Investors have become sensitive to deals between AI companies that appear circular in nature, and especially skeptical that OpenAI, a private company, will be able to spend the more than $1 trillion they’ve committed to building AI infrastructure.

But, so far, the sheer amount of money being spent building data centers to get more computing power has helped the AI trade broaden beyond just chipmakers. Last year, memory stocks including Sandisk Corp., Seagate Technology Holdings Plc, Western Digital Corp. and Micron Technology Inc. were the S&P 500’s biggest winners. Energy, utilities, materials and industrial sectors also got a lift as investors looked for ways to invest in AI outside of large-cap tech companies. Memory stocks have continued to outperform so far in 2026.

AI Evolution

While it’s become clear that Nvidia’s graphics processing units still dominate the market, there’s a place for custom-made chips and more general purpose processors. That has helped other companies claim a stake. For example, Alphabet’s tensor processing unit, or TPU, chips have been an upside catalyst for its shares because of their use within the company and the potential that they could be sold to third parties. Broadcom Inc., Advanced Micro Devices Inc. and even Intel Corp. have also seen shares rise over optimism for their chips.

“DeepSeek was able to show there’s different, equally effective ways of using these artificial intelligence models that don’t necessarily mean you have to have the fastest and newest chips,” said Allen Bond, portfolio manager at Jensen Investment Management. “What we’ve seen is just more of an evolution, and we would expect that to continue at this point.”

While the AI boom remains strong, some of the biggest winners from the tech - the Magnificent Seven group of stocks - is down about 0.3% this year, with Alphabet, Nvidia, Meta and Amazon shares in positive territory.

That’s not a death knell for the AI trade, according to Ivana Delevska, chief investment officer at Spear Invest. The companies with the brightest outlooks for profit growth are now tied to infrastructure, she said.

The AI “trade is still on, I’d compare it more to an industrial revolution,” Delevska said. “It’s impacting the entire market.”

--With assistance from Subrat Patnaik and David Watkins.

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