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Nvidia’s Surge Proves DeepSeek Concerns Were Misplaced One Year On

January 27, 2026 • By gsswpadmin

A year ago, the Chinese startup DeepSeek sent shockwaves through the stock market by suggesting that developing artificial intelligence (AI) was far easier and cheaper than previously thought. Fast forward 12 months, and that notion has largely proven to be a mirage.

DeepSeek’s announcement led to a staggering $589 billion drop in Nvidia Corp.’s market value in just one day. The company claimed to have developed an AI model comparable to those of OpenAI and Meta Platforms Inc., but at a fraction of the cost. This news triggered a double-digit plunge in Nvidia’s stock, dragging the S&P 500 Index down by 1.5% and causing the tech-heavy Nasdaq 100 Index to lose 3%. Even energy and utility stocks, such as Vistra Corp. and Constellation Energy Corp., which typically benefit from advancements in technology, faced sell-offs.

However, just 24 hours later, Nvidia’s shares began to recover, as investors rushed to buy the dip. Over the following days and weeks, concerns eased as reports indicated that DeepSeek’s model was not the competitive threat initially feared.

“The initial reaction was ‘oh my God, this could be done way cheaper and these companies are in trouble, and Nvidia’s not going to be able to sell these expensive chips,’” explained Eric Diton, president and managing director of Wealth Alliance. “Here we are a year later, and that’s just obviously not true. Nvidia’s growth rate continues to defy all logic.”

Since the DeepSeek selloff, Nvidia’s shares have surged by 58%, contributing significantly to the S&P 500’s advance in 2025.

Demis Hassabis, CEO of Google DeepMind, remarked at this year’s World Economic Forum in Davos that there was a “massive overreaction” to DeepSeek. The event sparked discussions about whether China poses a tech threat to the U.S. Even Marc Andreessen labeled DeepSeek as “AI’s Sputnik moment” last year.

The swift market reaction to DeepSeek serves as a reminder of a fundamental investing principle: Innovation is constant and can rapidly alter market dynamics, particularly in emerging technologies.

“Technology moves incredibly fast,” noted Eric Gerster, chief investment officer at AlphaCore Wealth Advisory. “One has to be a little bit nimble.”

One of the primary concerns raised by DeepSeek was that the billions of dollars in capital expenditures pledged by hyperscalers would be curtailed, potentially stunting growth for Nvidia and similar companies. Contrary to this fear, spending has surged, with Meta, Microsoft Corp., Amazon.com Inc., and Alphabet Inc. expected to invest approximately $475 billion in capital expenditures by 2026, according to Bloomberg estimates.

While investors have largely welcomed the rising capex budgets, concerns about bottlenecks hindering development and the risk of overbuilding persist. There is growing skepticism regarding deals between AI companies that appear circular in nature, particularly regarding OpenAI’s ability to spend the more than $1 trillion committed to building AI infrastructure.

Nonetheless, the substantial investment in data centers to enhance computing power has expanded the AI trade beyond just chipmakers. Last year, memory stocks such as Sandisk Corp., Seagate Technology Holdings Plc, Western Digital Corp., and Micron Technology Inc. emerged as the biggest winners in the S&P 500. Additionally, sectors like energy, utilities, materials, and industrials have benefited as investors seek ways to capitalize on AI beyond large-cap tech companies. Memory stocks have continued to outperform in 2026.

AI Evolution

While Nvidia’s graphics processing units (GPUs) continue to dominate the market, there is room for custom-made chips and more general-purpose processors. This diversification has allowed other companies to carve out their niches. For instance, Alphabet’s tensor processing unit (TPU) chips have positively impacted its stock due to their internal use and potential third-party sales. Companies like Broadcom Inc., Advanced Micro Devices Inc., and even Intel Corp. have also seen their shares rise amid optimism for their chip offerings.

“DeepSeek demonstrated that there are various effective methods for utilizing AI models that don’t necessarily require the fastest and newest chips,” stated Allen Bond, portfolio manager at Jensen Investment Management. “What we’ve observed is more of an evolution, and we expect this trend to continue.”

While the AI boom remains robust, some of the biggest winners from this tech surge—the Magnificent Seven group of stocks—are down about 0.3% this year, although Alphabet, Nvidia, Meta, and Amazon shares remain in positive territory.

This downturn is not indicative of a decline in the AI trade, according to Ivana Delevska, chief investment officer at Spear Invest. She asserts that companies with the brightest profit growth prospects are now closely tied to infrastructure.

“The AI trade is still on; I’d compare it more to an industrial revolution,” Delevska remarked. “It’s impacting the entire market.”

Top Tech Stories

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Photograph: The Deepseek logo; Photo credit: Raul Ariano/Bloomberg