DeepSeek to release new AI model. A rough period for Nasdaq stocks could follow

The tech sector, already navigating a period of uncertainty, faces potential turbulence with the anticipated release of a new artificial intelligence model from Chinese company DeepSeek. The timing, following the Lunar New Year, suggests an imminent launch, echoing a pattern established by the company with previous releases.

A History of Market Impact

The January 2025 Launch

DeepSeek’s previous model launch, in January 2025, sent ripples through the stock market. On January 27, 2025, the Nasdaq Composite experienced a 3% tumble, while Nvidia saw a nearly 17% loss. This event highlighted the market’s sensitivity to developments in the AI landscape.

Did You Know? DeepSeek reportedly developed its last model in just two months, at a cost of under $6 million, utilizing lower-capacity Nvidia chips.

Concerns About U.S. Leadership

The speed and cost-effectiveness of DeepSeek’s development process raised questions about the United States’ leading position in AI technology. It also prompted scrutiny of the substantial investments made by Big Tech companies in large-scale data centers.

Current Market Conditions and Potential Scenarios

The market is currently grappling with multiple uncertainties. In addition to the looming DeepSeek release, traders are considering adjustments to President Donald Trump’s tariff agenda and the possibility of a U.S. Attack on Iran. Monday saw significant market declines, with the Dow Jones Industrial Average falling over 700 points (1.5%), the S&P 500 dropping 1% and the Nasdaq Composite sliding 1.1%.

JPMorgan’s Perspective

Despite the anxieties, JPMorgan’s trading desk maintains a tactically bullish outlook, suggesting a potential rebound for megacap tech companies and a possible easing of broader AI-related concerns. However, a “bear case” scenario exists where Nvidia fails to meet earnings expectations, potentially triggering another market reaction similar to the January 2025 DeepSeek launch.

Expert Insight: The market’s reaction to DeepSeek’s previous release demonstrates the potential for rapid shifts in investor sentiment based on developments in AI, particularly when those developments challenge established narratives about technological leadership and investment strategies.

Impact on ETFs

Following the January 2025 release, semiconductor stocks were particularly hard hit. The VanEck Semiconductor ETF (SMH) tumbled nearly 10% and did not recover those losses within a month. The iShares Expanded Tech-Software Sector ETF (IGV), representing software stocks, experienced a smaller decline of 1.7% on January 27, 2025, but still underperformed the broader S&P 500, which fell by 1.5% on the same day.

What Could Happen Next?

If DeepSeek V4 performs comparably to its predecessor, a similar market response is possible. This could involve declines in the Nasdaq Composite and significant losses for companies like Nvidia. However, if Nvidia delivers strong earnings results, it could mitigate some of the negative impact. The market’s reaction will likely depend on how investors perceive DeepSeek’s new model relative to existing technologies and future expectations.

Frequently Asked Questions

What was the market reaction to DeepSeek’s January 2025 launch?

On January 27, 2025, the Nasdaq Composite tumbled 3%, and Nvidia lost nearly 17% following the launch of DeepSeek’s open-source reasoning model.

How long did it reportedly take DeepSeek to build its last model?

DeepSeek stated it took only two months to build the model, and the cost was less than $6 million.

What is JPMorgan’s current outlook on the market?

JPMorgan’s trading desk is holding a tactically bullish view, anticipating a potential comeback for megacap tech, but acknowledges a “bear case” scenario involving Nvidia’s earnings and another DeepSeek-related market downturn.

Given the confluence of global economic factors and technological advancements, how might investors best prepare for potential volatility in the tech sector?