In a seismic shift within the technology sector, the rise of the Chinese artificial intelligence startup DeepSeek has sent shockwaves through Wall Street, particularly affecting NVIDIA—a company that has become synonymous with AI-driven growthOn a particularly dramatic trading day, NVIDIA's stock price plummeted, with intraday losses exceeding 18%, marking the most significant drop since March 2020, coinciding with the early days of the COVID-19 pandemicBy the end of the trading session, NVIDIA shares settled at $118.42, reflecting a nearly 17% decline and resulting in an astounding $589 billion loss in market capitalization—an unprecedented event in the annals of American stock marketsThis decline outstrips even last September's significant hit when NVIDIA's market cap evaporated by $279 billion in a single day, underscoring a potential turning point for tech stocks in the AI sector.

The ramifications of this decline were felt across the Atlantic, influencing European tech stocks to fall sharply

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Pre-market futures for the Nasdaq 100 dipped by 5%, and the index eventually closed down over 3%. The S&P 500 Index opened with a gap down exceeding 2%, while the notorious “fear gauge,” known as VIX, surged by more than 51% to its highest levels in five weeksIn reaction to escalating risk aversion, both the U.Sdollar and bond yields plummeted, highlighting a significant shift in trader sentiment who began to recalibrate their expectations towards Federal Reserve interest rate moves, fully absorbing the prospect of a 50 basis point cut within the year.

The emergence of DeepSeek has triggered profound anxiety among Wall Street investorsThis company, known for its competitive edge and cost-effectiveness, has cultivated skepticism regarding the sustainability of U.S.-listed AI stocks, being likened to a pin poised to burst the AI stock bubble

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Notably, DeepSeek has achieved this without relying on the latest chips, raising substantial questions about whether NVIDIA's state-of-the-art chips remain necessary, and casting doubts on the exorbitant investments tech firms have made in AI models and data infrastructuresThis emerging narrative has led to a widespread correction not only in semiconductor stocks but also among data center service providers and energy suppliers fueling AI infrastructures, as concerns grow that DeepSeek's model may reduce future spending on AI infrastructure and anticipated chip and energy needs.

Citrini Research, a long-term investor in NVIDIA, offers a nuanced perspective on the company’s future outlookThey highlight evident reasons to be bearish on NVIDIA: as AI models become increasingly efficient, the need for GPUs may taper, posing a serious challenge to NVIDIA's core operations

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Conversely, there are reasons to maintain a bullish outlook; improvements in computational efficiency theoretically could stimulate demand for AI-related productsHowever, Citrini Research remains skeptical about this prospect, suggesting that the AI race is entering a new phase that diverges significantly from previous modelsThey believe that the market does not adequately price in the diminished incremental capital expenditure potential for NVIDIA, and from a risk-reward standpoint, the stock no longer appears particularly attractive, indicating a decline in investment value.

Goldman Sachs’ global head of hedge fund investments, Tony Pasqualino, predicts that the next wave of declines for large U.Stech stocks may be driven by retail investorsIn a report to clients, he expressed skepticism that retail traders would hastily reduce their positions in the coming days, noting that hedge funds have been actively decreasing their risk exposure for several months.

An internal commentary from Goldman Sachs' TMT trading desk suggested widespread urgency among investors to offload assets, with a notable lack of buying activity

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Despite some bullish investors providing verbal justifications for maintaining their positions, a majority appear to be acting with caution.

Investor caution surrounding AI firms' claims of needing vast amounts of funding for model training has intensified, particularly given the absence of short-term profitability strategiesDeepSeek's meteoric rise has seemingly validated these anxieties, with NVIDIA witnessing nearly $600 billion evaporate from its market cap overnight—an amount surpassing even the entire budget for the sci-fi spectacle “Stargate.”

The recent declines in U.Stech stocks have drawn comparisons to what some are dubbing the “Cisco moment.” Many investors recall the painful lessons from the bursting of the internet bubble, and the turbulence experienced in the current tech landscape evokes parallels to that crisis