U.S. artificial intelligence stocks like Nvidia experienced a surge on Tuesday as investors returned, bouncing back from Monday's mass sell-off triggered by the rise of Chinese AI startup, DeepSeek. However, the extent of Monday's market shift has left several Wall Street experts predicting a more muted recovery for the affected stocks. In particular, AI stocks faced a steep downfall after DeepSeek's app outpaced OpenAI's to become the most popular free U.S. app download.
The startup's assertion that its AI models can rival the American versions at a significantly reduced cost has sparked concerns over the competitiveness of U.S. companies and their hefty investments in the nascent technology. Analysts from Bernstein, Citi, Wedbush, Raymond James, among others, suggested that Monday's market plunge may have been an overreaction, presenting a chance to invest at a lower point.
Nvidia shares rose approximately 9% in Tuesday's closing, despite a significant drop from the closing figure on Friday. Other companies like Astera Labs observed a share increase of roughly 8%, coupled with Marvell's 3.5% increase and Broadcom's close to 3% rise. Meanwhile, Micron shares fell by around 3%, relinquishing the earlier gains. However, this rebound has also led to guarded optimism.
"Investors may need to contemplate reducing their tech holdings, given the still-high valuations and looming uncertainties," opined ProShares Global Investment Strategist Simeon Hyman. Whereas Morgan Stanley analysts advised clients that while they continue to see a bright side in AI semiconductor stocks, the subsequent market reaction is likely more significant than the cause and it could potentially invite more export controls or dampen the fervour for spending.
The analysts also stated that while they do not anticipate these concerns to lead to drastic changes in most AI companies' spending habits, investors might respond tepidly to the forthcoming spending announcements. The spending announcements, such as the ones by Meta Platforms who expressed an intent to spend $65 billion for AI, or President Donald Trump's ambitious $500 billion AI infrastructure project, had previously garnered substantial support.
Despite this, the analysts have kept "overweight" ratings for AI chip manufacturers Nvidia and Broadcom but have decreased their price expectations for Nvidia from $166 to $152 and for Broadcom from $265 to $246. Price targets for Astera Labs, Marvell Technology, and Micron Technology were also lowered.