The Black Swan author Nassim Taleb warns AI stocks investors of future setbacks. He pointed to Monday’s brutal selloff in Nvidia Corp., asserting that the backlash was just a taste of what’s in store for investors who blindly piled into Wall Street’s AI-driven stock rally.
According to Nassim Taleb, future declines could be two or three times more significant than the 17% decline that Nvidia experienced.
“The Black Swan” author Nassim Taleb is warning that Monday’s brutal selloff in Nvidia is just a taste of what’s in store https://t.co/KWCdjF4g4n
— Bloomberg Markets (@markets) January 28, 2025
Notably, Nvidia’s stock price drop yesterday marked its most disappointing day on Wall Street since March 2020. The chip maker’s valuation was reduced by $589 billion as a result of this decline. It also contributed to the decline of the broader technology market.
In an interview after the close of markets on Monday, the author said, “This is the beginning […] The beginning of an adjustment of people to reality. Because now they realize, now, it’s no longer flawless. You have a small little chip on the glass.”
Why AI stocks dropped
According to Nassim Taleb, investors have been too fixated on the idea that the company’s stock will keep going up as it remains a leader in AI. He said that Monday’s retreat was very little, given the risks in the business.
In addition, Nassim Taleb said that many buyers are driving up the prices of AI-related companies without really understanding how they work or whether they will be successful. He called tech companies “gray swans” because buyers don’t realize how much their prices can change in just one day.
Notably, the crash hit other big players hard too. Google parent Alphabet and Microsoft also saw their stock prices fall 4% and 2%. Micron and Arm Holdings fell by more than 11% and 10%, while Advanced Micro Devices (AMD) and Broadcom saw larger declines of 6% and 17%.
Power businesses related to AI, such as Constellation Energy and Vistra, saw large losses of 20% and 28%, respectively.
The US was not the only one affected. European chip giants ASML and ASM International saw sharp declines during trading hours, while in Asia, Japanese chipmakers like Advantest and Tokyo Electron also reported huge losses.
How is China AI different from the US AI?
There has only been one fear when it comes to AI stocks: overspending. DeepSeek, a Chinese AI startup has shown it can build the technology at a lower cost. This is new.
This is how. OpenAI was founded 10 years ago, has 4,500 employees, and has raised $6.6 billion in capital. DeepSeek was founded less than 2 years ago, has 200 employees, and was developed for less than $10 million.
In their research paper, DeepSeek’s engineers mentioned that they used around 2,000 Nvidia H800 chips, which are not the latest technology, to train their model. The team also used several special models that work together to help slower chips analyze data better.
Liang Wenfeng, the CEO of DeepSeek, said, “Reproduction alone is relatively cheap based on public papers and open-source code. Minimal training or even fine-tuning suffices. Research, however, involves extensive experiments, comparisons, and higher computational and talent demands.”
DeepSeek’s research paper indicates that advanced chips may not be necessary for making effective AI models or that Chinese companies can still get enough chips. It might also be a mix of both reasons.
The rise of China’s AI company is making the US government reconsider its approach to limiting China’s AI progress by controlling the sale of advanced computer chips.
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