I'm Not Buying the Nvidia, AI Dip as Questions About DeepSeek Persist

Imagine if a new smartphone appeared seemingly overnight. The new phone is equal to or superior to every smartphone on the market, but at one-tenth of the price.

The result would be a sharp decline in the share prices of leading smartphone manufacturers, and in the manufacturers of smartphone components, as analysts reduced profit and revenue projections.

Such is the case with DeepSeek. According to recent reports, DeepSeek’s AI models can perform tasks similar to leading competitors, but at a fraction of the cost.

The backlash has been swift and furious. The S&P 500 (left chart), just two sessions removed from closing at an all-time high, gapped hard and struggled to stay above its 50-day moving average (blue). The Nasdaq Composite (right chart) plunged 3.5%, placing it squarely below its 50-day MA (blue). 

The damage was most apparent in the semiconductor industry. The Philadelphia Semiconductor Index (left chart, below), which contains several AI chipmakers, fell by 9.2%. The poster child for AI chips, Nvidia NVDA (right chart, below) plunged by nearly 17%. Both closed well below their respective 200-day moving averages (red). 

I’ve seen numerous articles suggesting that the DeepSeek hype is overblown, and that the market is overestimating its impact.

It’s tempting to latch on to this information. To paraphrase the X Files, ”We want to believe.”

After all, the majority of retail traders are long, and many are long AI stocks like Nvidia. If DeepSeek turns out to be a nothing burger, the major indexes should regain the ground lost on Monday. All would be well with the world.

Then again, if I were a big institutional trader sitting on a large Nvidia position right now, the last thing I’d want is a selling frenzy.

Keep in mind that institutions and funds that are holding AI stocks have an incentive to manufacture a positive narrative around those names. This being the case, I’d expect to hear positive comments about AI stocks in the coming days, and negative chatter about DeepSeek.

We can never know if a narrative is true until after the fact. Because of this, I’m not buying the dip in Nvidia or other AI-related names, at least not yet.

I might miss a chance to buy low, but what if by buying, I’m simply being drawn into a narrative? If that happens, then what seems to be a good entry point turns into a losing trade.

We’ll know the real story soon enough. In the meantime, I’m not here to provide liquidity for someone else’s exit plan. For now, I’m staying on the sidelines when it comes to Nvidia and AI stocks. 

At the time of publication, Ponsi had no positions in any securities mentioned.