Shares of Advanced Micro Devices (NASDAQ: AMD) slipped Monday, losing 6.9% as of 4 p.m. ET, after being down as much as 8.2% earlier in the day. The surge comes as the S&P 500 and Nasdaq Composite lost 1.7% and 3.3%, respectively.
AMD's stock suffered from the same news dragging down much of Silicon Valley today: the release of a new artificial intelligence (AI) model out of China that rivals the best U.S. models.
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A new Chinese entrant makes a big splash
DeepSeek, from a company in China, is relatively new. In a short amount of time, with inferior hardware and for a fraction of the price, DeepSeek was able to create an AI model on par with offerings from both OpenAI and Amazon.
That revelation sent many AI stocks down on Monday, especially hardware companies like AMD. The belief is that the red-hot demand for computing power that has driven AI chip sales for years will now cool, given what DeepSeek managed to do with relatively little.
There is a silver lining
There is merit to this thesis, but I would exercise caution here. The market reacted very strongly -- I believe too strongly. While this does bring some uncertainty into the mix, I do not believe it is the death knell some are making it out to be.
In fact, the efficiency of DeepSeek could, among other things, rapidly advance the adoption of edge AI applications -- that is, AI run locally rather than in the cloud. This would be great news for AMD since the company's chips that enable this are better competitors for Nvidia's premier data-center powering chips. If computing shifts to the edge, it may mean AMD has a better chance of competing with its rival for market share.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Johnny Rice has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Amazon, and Nvidia. The Motley Fool has a disclosure policy.
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