Investor sentiment towards semiconductor companies has soured of late following the soaring popularity of a new artificial intelligence (AI) model from Chinese startup DeepSeek.
DeepSeek was reportedly developed on a shoestring budget of under $6mn, which raised concerns about the outlook for spending on cloud infrastructure. The authenticity of this figure has been widely contested. But that’s not been enough to calm investor nerves.
This article isn’t personal advice. If you’re not sure an investment is right for you, seek advice. Investments will rise and fall in value, so you could get back less than you invest. Past performance isn’t a guide to the future.
Which tech stocks have been hit hardest?
Much of the debate has been focussed on Wall Street’s darling NVIDIA. Other big semiconductor names caught in the crossfire include custom chip designer Broadcom and memory specialist Micron.
Outside of the US, stocks under the microscope include Taiwan Semiconductor Manufacturing Company and the Dutch builder of chip printing machines ASML.
It’s going to take a while for the dust to settle here, but it’s by no means the end of the party for AI infrastructure.
What could be next for AI and tech stocks?
Many of the recent big cheques set aside for investment in the space look to have been signed off after DeepSeek hit the scene. These include Donald Trump’s Stargate proposal, the Bank of China’s 5-year AI investment plan and Meta’s capital spending plans of up to $65bn for 2025.
Steep reductions in development costs in the early years of technology shifts have been commonplace in economic history. A fall in cost can actually lead to a larger addressable market. So future demand for computing power could outstrip current expectations.
It’s a paradox first noted by the economist William Jevons in 1865 after observing a spike in coal consumption after the introduction of the more efficient Watt steam engine.
That bodes well for the likes of NVIDIA, meaning that the current weakness could favour those willing to tolerate the added volatility and buckle up for the longer term.
But that only tells one side of the story.
For those looking to integrate AI into their business models, the prospect of lower development costs could seriously boost returns on investment.
Salesforce CEO Mac Benioff’s comments on social media that, “data is the new gold” has caught the attention of many and its roll out of the Agentforce business decision making platform is one we’ll be monitoring closely.
Alphabet (Google) and Meta (Facebook) are other businesses with huge datasets that they hope AI can help better monetise. On the flipside, however, it does raise the prospect of intensified competition for Google Gemini and Meta’s Llama model.
As for Google Cloud a reduction in the development cost of AI models could conversely boost demand for usage of the infrastructure that hosts them. That’s a positive for Amazon’s AWS and Microsoft’s Azure platforms too, but there’s no guarantee this trend will play out.
Eyes will be firmly fixed on earnings over the next fortnight where six of the ‘Magnificent 7’ are set to report – NVIDIA will complete the set on 26 February.
What does all this mean for investors?
It’s too early to tell whether history will judge DeepSeek as a pivotal moment in the race towards Artificial Generative Intelligence (AGI). But the case that AI is one of the most revolutionary developments of our time remains very much intact.
However, it’s a complex and fast changing field, which also increases the associated risks.
If the last couple of days have taught us anything, it’s the importance of diversifying your portfolio across a range of themes, industries and parts of the world – a mindset that helped guide our decision making when highlighting our Five Shares to Watch for 2025.
Investing in an individual company isn’t right for everyone because if that company fails, you could lose your whole investment. If you cannot afford this, investing in a single company might not be right for you. You should make sure you understand the companies you’re investing in and their specific risks. You should also make sure any shares you own are part of a diversified portfolio.
From a Trumponomics rally to falling US tech stocks, markets are going through lots of ups and downs.
But now isn’t the time to panic and make rash investment decisions. Instead, it’s a good time to make sure you’re holding a well-diversified portfolio.
Photo by Artur Widak/NurPhoto via Getty Images
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