NVIDIA and Other Chip Stocks Are Expected to Bounce. Is Now a Good Time to Buy?

Semiconductor stocks are showing signs of recovery on Tuesday, following a steep selloff triggered by concerns surrounding Chinese artificial-intelligence startup DeepSeek. The market’s reaction highlights ongoing debates on Wall Street about how DeepSeek’s technological breakthroughs might impact the booming semiconductor industry.

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DeepSeek has managed to develop an AI model in a more cost-efficient manner than previously anticipated. This raises critical questions: will companies now require significantly less computing hardware, or will this development accelerate AI adoption, driving even greater demand for semiconductors as the technology becomes more accessible?

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While the full implications remain unclear, semiconductor stocks are attempting to rebound, though the recovery is modest compared to Monday’s massive declines. Nvidia Corp.’s shares rose 1.8% Tuesday morning after plunging 17% on Monday. Broadcom Inc. saw a 1.1% increase after a 17.4% drop the day prior, while Marvell Technology Inc. gained 3.3% after suffering a 19.1% loss on Monday.

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According to Robert Maire of Semiconductor Advisors, the sharp declines on Monday might have been overdone. “It feels like the chip stocks, which have been so hot for so long and had a few brushes with downdrafts, finally got hit by something that was difficult to shake off because there was very little substance to go on,” Maire wrote. He believes that as more information emerges about DeepSeek, the perceived threat might turn out to be less severe than initially assumed.

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Timothy Arcuri of UBS echoed a similar sentiment, suggesting that major cloud providers likely won’t make significant changes to their spending plans in the short term. He pointed out that Meta Platforms Inc. was already aware of DeepSeek’s technological advancements but still projected higher capital expenditures for this year. Arcuri noted that once the market stabilizes, the sharp pullback in semiconductor stocks could appear to be a buying opportunity in hindsight.

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Christopher Danely, an analyst at Citi Research, remains optimistic about sustained AI-related budgets. He emphasized that DeepSeek’s reliance on distillation techniques, which build on other AI models, still requires robust cloud infrastructure, pointing to continued strong growth in AI-related spending. Danely also suggested that DeepSeek’s advancements could inspire competitors, potentially driving further AI proliferation, akin to the multiple search engines that emerged before market consolidation.

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Danely does not cover Nvidia but analyzed which semiconductor companies might be most vulnerable if AI spending slows. He identified Broadcom as the most exposed, given its 24% dependency on AI-related revenue and significant valuation expansion. Micron Technology, with its high-bandwidth memory business, could also face challenges, though its valuation has already corrected significantly.

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Advanced Micro Devices (AMD) presents a more complex case. According to Danely, AMD’s MI300 AI accelerator is particularly well-suited for open AI systems like those used by DeepSeek. This compatibility could provide a cushion for AMD against potential disruptions.

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Meanwhile, some semiconductor companies may remain relatively insulated from DeepSeek’s impact. Danely highlighted Texas Instruments, Analog Devices, and Intel as examples. Texas Instruments and Analog Devices primarily focus on analog markets, which have been under pressure but could be poised for a rebound. Intel, on the other hand, has largely been absent from the AI boom, making it less exposed to fluctuations in AI spending.

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While Monday’s selloff has left many investors concerned, the long-term outlook for the semiconductor industry remains a subject of debate. As more clarity emerges about DeepSeek’s advancements and their implications, analysts suggest the initial panic may subside, providing opportunities for investors willing to navigate the uncertainty. For now, semiconductor stocks are attempting to recover, with investors weighing both the risks and potential opportunities brought about by the rapidly evolving AI landscape.

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