DeepSeek knocked Nvidia stock, but the selloff could be overblown
Expectations were high for artificial intelligence (AI) companies, but they took a hit on Monday after Chinese startup DeepSeek claimed it can spend way less money and deliver AI performance comparable to major tech firms.
This triggered massive selloffs in megacap stocks. Nvidia (NVDA) fell 17%, losing over $500 billion in market capitalization -- a record-breaking decline, larger than the entire market cap of companies like Mastercard (MA), Netflix (NFLX), Costco (COST), and Bank of America (BAC).
Broadcom (AVGO) also plunged 17%, losing about $200 billion in market value, while Oracle (ORCL) fell roughly 14%, or $70 billion in market cap. It made me curious how stocks have tended to perform after such massive losses.
Megacaps Making Mega Moves
I’ll leave it to the fundamental traders to assess DeepSeek’s impact on Nvidia, Oracle, and Broadcom earnings. What I’ve done below is look at historical instances when large-scale losses have occurred, then see how the stocks performed afterwards. Specifically, I went back to 2000 and found instances when a stock’s price dropped by 10% or more, resulting in a loss of at least $50 billion in market cap.
The table below indicates this could be a buying opportunity for these stocks. I found 30 times before in which a stock fell 10% and $50 billion in market cap in a single day, with these stocks gaining more than 12% on average over the next three months, and over 20% in the next six months. with 60% of the returns positive.
The average positive return of more than 50% over the next six months suggests there’s been massive upside in these situations, despite the fact these are megacap stocks.
This next table is for comparison, and shows the return you would have earned had you purchased the S&P 500 Index (SPX) instead of the beaten down stocks. Buying the beaten down stocks outperformed on average at every time frame recorded.
Above, it shows that when massive market-cap losses occurred in the past, they tended to be overdone. Meanwhile, the table below summarizes a stock’s performance after a single-day gain of 10% or more, resulting in a market cap gain of at least $50 billion.
It seems that whenever a stock’s value changes by $50 billion or more during a single day, whether it is up or down, it's a good idea to buy it and hold it for six months. These stocks gained 10.6% on average in the next six months, with 58% outperforming the SPX. If you had invested in the SPX, it would have gained just 3% over the next six months.
