Is the AI Bubble Popping or Is DeepSeek Just Reducing the Froth?
In the aftermath of Monday's AI infrastructure carnage, here's how the market is reacting Tuesday and how traders should approach the challenge.
You're reading 0 of 1 free page.
Register to read more or Unlock Pro — 50% Off Ends Soon
On Tuesday morning, semiconductor stocks are rebounding as concerns regarding DeepSeek diminish. Various reports indicate that the market has overreacted to this unexpected news, yet there remains significant uncertainty and recognition that the competitive landscape will be quite challenging.
More competition in the development of large language models, like OpenAI and DeepSeek, is actually beneficial for software stocks and anyone who is using AI to generate or create new apps. AI infrastructure is becoming a commodity, and that makes it cheaper to use.
Sam Altman, who is associated with Microsoft MSFT and OpenAI, commented, "Deepseek's R1 is an impressive model, particularly around what they're able to deliver for the price. We will obviously deliver much better models, and also, it's legit invigorating to have a new competitor! We will pull up some releases, but mostly, we are excited to continue to execute on our research roadmap and believe more compute is more important now than ever before to succeed at our mission. The world is going to want to use a LOT of AI and really be quite amazed by the next-gen models coming."
The market is going to sort out the ramifications of increased competition in AI infrastructure, and there will be winners and losers. From a trading standpoint, though, it is creating new opportunities and is also a catalyst for some of the most extended stocks to pull back and develop healthier charts.
There won't be much time to sort out all the ramifications as we are quickly moving into earnings season. SAP SAP reported Tuesday morning and commented that "yesterday was a good day for SAP" because it benefits from competition in AI infrastructure.
The action will heat up on Wednesday when companies such as ASML Holding ASML, IBM IBM, and Tesla TSLA report. It is very likely they will have some very positive spin on how DeepSeek impacts them.
One of the big positives of the DeepSeek drama is that there is rotation out of technology and into other areas of the market that are not extended or expensive. The equal-weight S&P 500 RSP closed with a gain on Monday, while the capitalization-weighted S&P 500 SPY lost 1.4%.
The most important issue right now is that this doesn't look like the major top that many bears have anticipated. The bears are convinced AI is a bubble, but it looks like DeepSeek is helping to eliminate some of the froth and providing some potential technical support.
At the time of publication, Rev Shark had no positions in any securities mentioned.
