Hedge fund manager Bridgewater Associates said Chinese startup DeepSeek’s launch of its latest artificial intelligence (AI) models could lead to a short-term correction in many tech companies’ share prices but is positive for the industry.
The comments come amid a tech stocks sell-off prompted by the release of a free AI assistant launched by DeepSeek last week that the startup said uses less data at a fraction of the cost of services currently available.
DeepSeek’s AI Assistant has overtaken rival ChatGPT to become the top-rated free application available on Apple’s App Store in the United States, raising doubts about the reasoning behind some U.S. tech companies’ decision to pledge billions of dollars in AI investment.
“DeepSeek’s progress is big news, but not bad news for most of the AI ecosystem,” Bridgewater said in a note on Monday authored by Co-Chief Investment Officer Greg Jensen and Jas Sekhon, chief scientist of AIA Labs, a division within the hedge fund focused on developing and utilizing AI and machine learning technologies to generate investment strategies and insights.
DeepSeek threatens share prices for many tech stocks in the short term, Bridgewater said.
“This may be especially true for Nvidia, because DeepSeek’s success may encourage companies to invest more in achieving efficiency gains by optimizing how AI software interacts with the hardware,” said the note.
Shares in Nvidia, a leader in the AI chip market, fell 17% on Monday, wiping $593 billion from its market value - a record one-day loss for any company - and dragged U.S. stocks lower. That drop was partly corrected on Tuesday, with Nvidia shares up around 5% in premarket trading.
Still, DeepSeek’s progress is overall positive for the development of AI technologies, said the hedge fund, and could accelerate the emergence of non-tech leading companies adopting it more broadly.
“That is the moment when AI adoption becomes as existential to everyone as it is today for Google and Microsoft. It is then that we expect the true bubble to manifest,” it said.
The Federal Reserve held interest rates steady on Wednesday and gave little insight into when further reductions in borrowing costs may take place in an economy where inflation remains above target, growth continues, and the unemployment rate is low.
After several months in which inflation data have largely moved sideways, the U.S. central bank dropped from its latest policy statement language saying that inflation “has made progress” towards the Fed’s 2% inflation goal, noting only that the pace of price increases “remains elevated.”
Recent key inflation readings remain about half a percentage point or more above the Fed’s target.
Fed officials say they largely believe the progress in lowering inflation will resume this year, but have now put rates on hold as they await data to confirm it.
“Economic activity has continued to expand at a solid pace. The unemployment rate has stabilized at a low level in recent months, and labor market conditions remain solid,” the central bank’s policy-setting Federal Open Market Committee said in a statement after the end of its latest two-day meeting.
“In considering the extent and timing of additional adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks,” it said.
Speaking at a press conference following the release of the policy statement, Fed Chair Jerome Powell said “we do not need to be in a hurry to adjust our policy stance” and monetary policy is “well positioned” for the challenges at hand. He noted there are risks to cutting rates too aggressively, saying “we know that reducing policy restraint too fast or too much could hinder progress on inflation.”
The unanimous decision to keep the overnight interest rate in the current 4.25%-4.50% range, coupled with the new statement, puts the Fed in a holding pattern as officials await further inflation and jobs data and clarity on the impact of President Donald Trump’s policies.
After the release of the statement, short-term interest rate futures showed that investors expect the central bank to hold off on cutting rates again until June. U.S. bond yields were little changed while stocks lost some ground.
The Trump administration already has moved to deport some undocumented immigrants and freeze federal spending, and could broaden its reach to include as soon as this weekend new import tariffs on major trading partners such as Mexico and Canada.
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