Jan. 27 was a wild day in the stock market as investors reacted to Chinese start-up DeepSeek’s R1 “reasoning” model that competes with OpenAI’s o1 model.
Semiconductor stocks Nvidia (NASDAQ: NVDA), Broadcom, and Taiwan Semiconductor Manufacturing — which constitute over $5 trillion in combined market cap — fell between 13% and 17% in a single session.
But outside of chip stocks and some artificial intelligence (AI)-focused companies, the rest of the market largely held up. In fact, Apple (NASDAQ: AAPL) jumped 3%. And Meta Platforms (NASDAQ: META), which is one of the largest investors in AI, gained 2%.
Here’s a look at how markets are reacting to DeepSeek’s impact on AI and why Meta Platforms stands out as a top AI stock to buy now.
Reports indicate that DeepSeek was able to build its model at a far lower cost than OpenAI’s solution, which led to fears of slowing demand for AI infrastructure like Nvidia graphics processing units (GPUs) or Broadcom’s application-specific integrated circuits. The news marks a potential step change in the way AI investments are viewed.
The Donald Trump-backed $500 billion Stargate AI project is tasked with building out data centers to support AI workflows. Microsoft is on track to spend around $80 billion on AI in fiscal 2025. If highly sophisticated AI tools can be built fairly inexpensively, more scrutiny may be warranted on AI spending. And investors won’t applaud a company just because it is throwing money at AI.
However, a subsequent 9% rebound in Nvidia the following day on Jan. 28 came as some investors and analysts viewed efficiency improvements as a net positive, arguing that overall compute demand could increase if AI became more affordable for smaller companies.
A similar comparison would be the price of an iPhone over time. When the iPhone first came out in 2007, it cost $499 for the 4 GB version and $599 for the 8 GB model. Inflation-adjusted, that cost is closer to $780 for the 4 GB and $930 for the 8 GB. But the new iPhone 16 starts at just $799, so the cost of an iPhone has stayed about the same since its release despite product innovation and exponential storage increases. Rather, Apple has grown by several folds since then, both in terms of earnings and the stock price, because the iPhone became a consumer staple and Apple expanded its ecosystem across accessories and services. The same could occur with Nvidia. If the market for its products grows, Nvidia won’t need to rely so much on pricing power, which could benefit the company long-term.
