Last January, artificial intelligence (AI) stocks declined briefly and suddenly due to news that DeepSeek, a company out of China, had an AI model that rivaled ones in the U.S. The most startling development was that it was supposedly at just a fraction of the cost. AI stocks, including Nvidia (NVDA +7.64%), spiraled.
While they ended up recovering, it's a great example of how quickly the market can turn, and how reacting too quickly can potentially result in significant losses. At the same time, buying opportunistically on bad news can lead to substantial gains later on. Here's how far Nvidia's stock fell last year during the DeepSeek collapse, and how much you'd be up if you'd bought it back then.
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The day Nvidia fell by 17%
On Jan. 27, 2025, shares of Nvidia closed at $118.42. That was a decline of around 17% from where they finished the previous day -- $142.62. If you were to have bought the stock that day and held on for a year, it would be up to around $188, and you'd be sitting on a gain of approximately 59%. On a $5,000 investment, that translates into a profit of nearly $3,000.
Hindsight is, of course, 20/20. At the time, there were serious concerns that AI stocks were overvalued and that spending on AI models and technologies wasn't justified. Yet, a year later, those concerns are still prevalent. There are still worries about whether OpenAI's significant expenditures are worth it, particularly with so many chatbots out there today. While ChatGPT remains one of the more popular ones, whether it's the undisputed leader is debatable.
NASDAQ: NVDA
Key Data Points
Why AI investors should prepare for a possible DeepSeek moment again
Given how high valuations are in the market today and how well stocks like Nvidia have done, it's crucial for investors to have a plan about what to do if a similar sell-off were to occur now. The market showed just how fragile it was a year ago, and another sudden decline can happen again, at a moment's notice.
Whether it was the DeepSeek decline, the sell-off after reciprocal tariffs were announced last April, or the brief crash in 2020 due to the pandemic, there have been multiple times in recent history when being prepared to act and having a plan could have been significantly advantageous.
If, in the case of Nvidia, you feel confident about it as a long-term investment, you should consider whether to buy more Nvidia stock in a market decline. If your investing timeframe is several years, you need to brace for possible volatility and plan to stay invested, even if there is a sudden drop in value. Either way, by at least having a plan, you can better prepare yourself when there is volatility in the markets.
