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Investing.com -- The release of DeepSeek’s latest AI model has sparked a global tech selloff, raising concerns about its potential to disrupt U.S. tech dominance.
An analyst at Vital Knowledge said in a note Monday that he believes the reaction could signal a critical moment for market rebalancing.
DeepSeek, a Chinese AI company, unveiled an AI model nearly matching the performance of U.S. leaders like OpenAI and Meta (NASDAQ:META).
According to the analyst, what’s most surprising is that DeepSeek achieved this “despite spending significantly less money and not having access to endless cutting-edge Nvidia (NASDAQ:NVDA) chips.” This has raised questions about the sustainability of U.S. tech firms’ massive AI spending.
For over 18 months, tech stocks have surged on AI-related optimism, but Vital Knowledge warns that the sector is “extremely vulnerable to a violent adjustment in both valuations and positioning” if growth forecasts flatten.
This vulnerability is said to stem from how heavily tech has dominated the broader market at the expense of other sectors.
However, the analyst sees a silver lining: the tech downturn could promote healthier market dynamics.
“The tech rout could help rebalance the market,” he noted, pointing out that the equal-weight S&P has lagged behind for years but has started modestly outperforming in 2025.
While the DeepSeek panic has unsettled investors, Vital Knowledge argues it may be overblown.
The analyst highlights Meta’s recent announcement of a massive 2025 capex budget and Stargate’s $500 billion AI infrastructure plan, which underscore the ongoing demand for robust AI investments.
“It’s one thing to train a model for less money, but accommodating the huge demand for the consumption of all this AI technology is still going to require massive amounts of infrastructure,” said the firm.
While the selloff reflects immediate fears, the analyst believes lower AI capital costs could be a long-term economic boon, making the revolutionary technology more accessible across industries.