Why AMD Stock Is Sinking Today

AMD (NASDAQ: AMD) is experiencing a decline in its stock price during Monday's trading session. As of 3:45 p.m. ET, shares of the semiconductor company were down approximately 7%. This drop occurs against a broader market backdrop, where the S&P 500 index is down 1.8% and the Nasdaq Composite has fallen by 3.5%.

The primary driver behind AMD's stock decline is related to the recent release of an artificial intelligence (AI) model by a Chinese start-up called DeepSeek. This company has introduced software claimed to outperform OpenAI's ChatGPT in certain areas. The market is noting the implications this has for the competitive landscape of AI technology, especially the positioning of U.S. companies like AMD.

AMD Stock Falls Due to DeepSeek AI Model

Investors are reacting strongly to the news surrounding DeepSeek's AI model today, leading to significant sell-offs across various stocks. The introduction of DeepSeek's new software has raised concerns regarding the United States' ability to maintain its competitive edge against China in the fast-evolving AI sector. What makes this situation noteworthy is that the DeepSeek-R1 model was reportedly developed in less than two months at a surprisingly low cost of $5.6 million, whereas the development of OpenAI's ChatGPT-4 incurred expenses exceeding $100 million.

Furthermore, the DeepSeek-R1 model is said to operate on less processing power, cooling, and resources while delivering competitive results compared to ChatGPT and other AI systems developed in the U.S. It is worth noting that the DeepSeek-R1 model utilized Nvidia's A100 processors for training. While these processors are certainly powerful, they are not as advanced as Nvidia's current highest-end offerings. This scenario raises important questions about the growth potential for AMD, Nvidia, and other companies involved in high-performance processing solutions.

Macro-economic Factors Affecting AMD

In addition to the pressures from DeepSeek's advancements, AMD's stock is also responding to changing macroeconomic conditions. Recent reports suggest that the Federal Reserve intends to keep the benchmark interest rate steady until the effects of new economic policies are fully understood. If the Fed decides to deliver fewer than two anticipated 25-basis-point rate cuts this year, it could negatively impact the market valuation of growth stocks like AMD.

Currently, AMD's share price has risen just 3.5% over the past three years. However, it also reflects a significant decline of roughly 46% from its peak value. As analysts become more cautious about AMD's growth prospects in the AI field, the company's valuation remains under scrutiny. The developments related to DeepSeek and predictions about demand for advanced processors could lead to further volatility in AMD's stock in the short term.

For investors who see long-term potential in AMD, today's stock dip might present a buying opportunity. However, it is essential to note that predicting the company's growth trajectory involves a considerable amount of speculation.

AMD, stock, AI