Has the AI bubble burst?

After the Chinese DeepSeek artificial intelligence model shook the agenda, there was a major decline in the shares of US technology companies, especially Nvidia. Some claims were made that the “bubble” created by artificial intelligence companies in the West, especially in the United States, burst in 2024. However, an assessment published in Axios suggests that the issue is a little more complex.

According to Axios, what initially appeared to be a broad sell-off in AI stocks on the morning of DeepSeek’s release turned out, in retrospect, to be a more measured “recalibration” of where the market thought AI profits would flow in the future. Nvidia had emerged as the defining stock of 2024, backed by an army of investors, but “profitable trades don’t last forever.” According to Axios, investors always move on eventually, usually after making enormous sums of money.

Nvidia shares fell 11% between 21–29 January, but there are other numbers: Nvidia closed yesterday with a market capitalization of over $3 trillion, comfortably in the top three most valuable companies in the world. It is worth 70% more than Saudi Aramco and 24% more than Alphabet or Amazon. According to Axios, this is not what a bubble burst looks like.

Pointing to the instantly famous “short case for Nvidia” note published on Saturday by Jeffrey Emanuel, an analyst interested in the economics of artificial intelligence, Axios points out that Emanuel’s 12,000-word thesis is much more complex than the idea that “DeepSeek single-handedly turned the AI world upside down.” It’s worth noting that the sales came exactly a week after the launch of DeepSeek’s R1 AI model and more than a month after the launch of its V3 model, which competes directly with OpenAI’s GPT-4.

Emanuel’s thesis is not that DeepSeek alone is particularly disruptive. Rather, it shows how competitive the Chinese AI space can be and how much opportunity there is for a wide range of players. Many companies, including Amazon, Apple, and even OpenAI, are investing heavily to try to build chips that can compete with Nvidia.

While Nvidia has made extraordinarily strong moves so far, there’s plenty of reason to believe it will be eroded over time, even by AI tools developed using Nvidia chips, according to Axios. For example, AI stocks certainly didn’t have a bad week last week. The market still believes that companies like Meta and Microsoft will spend record amounts of money this year on new data centers filled with Nvidia chips and now hopes that these chips will be more efficient and powerful than originally believed.

Indeed, Meta and Microsoft shares are 10% and 3% higher, respectively, based on the zero point on 21 January. According to Axios, “If this is what destruction looks like, the AI revolution will be pretty painless.”