Global technology shares have faced downward pressure following the emergence of DeepSeek, a Chinese chatbot rival to OpenAI’s ChatGPT, sparking concerns about the sustainability of the U.S. artificial intelligence boom.
Despite market jitters, Bank of America remains optimistic, stating that concerns over DeepSeek’s impact on the semiconductor industry are overstated, maintaining a bullish outlook on key players like Nvidia (NASDAQ: NVDA).
Market reaction to DeepSeek
DeepSeek’s R1 model has garnered attention for its ability to match the performance of leading Western AI models, including OpenAI’s ChatGPT, at a fraction of the cost. According to the company, the model was developed using older Nvidia H800 chips at a cost of less than $6 million.
Picks for you
This has raised doubts about the multibillion-dollar AI spending spree in the U.S. that has fueled tech market gains in recent years. Nvidia, the leading provider of advanced AI chips, has borne the brunt of these concerns, with its share price dropping by as much as 10.14% in pre-market trading and falling 15% on January 27 to trade at $120.97 at press time.
Bank of America’s bullish perspective
Despite the short-term market reaction, analysts at Bank of America have maintained a positive outlook on Nvidia and the broader semiconductor industry.
While the emergence of cost-efficient AI models like DeepSeek’s R1 has raised concerns, the firm emphasizes that these models remain reliant on foundational large language models (LLMs), such as Meta’s (NASDAQ: META) open-source Llama, which require significant infrastructure investment.
Meta’s plan to increase its 2025 capital expenditures by over 56% to $60–$65 billion indicates the ongoing need for advanced technology to support foundational AI models.
“However, we believe this concern about slowing AI scaling is overstated. Based on available data, DeepSeek’s model appears to be a ‘distilled’ model relying on larger foundation models like Meta’s open-source Llama.”
BofA expects this trend to continue, with compute demand driven by foundational models, derivative models using knowledge distillation and sparse attention, and large-scale inference applications across diverse industries.
The bullish sentiment extends to other semiconductor players as well. Bank of America reiterated its ‘Buy’ ratings on Broadcom (NASDAQ: AVGO) and Marvell Technology (NASDAQ: MRVL), noting their critical roles in supplying the infrastructure required for AI advancement.
The recent selloff in Nvidia shares has not shaken bullish sentiment. Citigroup analyst Atif Malik reaffirmed a ‘Buy’ rating with a $175 price target, expressing skepticism about DeepSeek’s cost advantage. Malik noted that advanced GPUs may have likely contributed to building and fine-tuning its models.
Featured image via Shutterstock
