Like a new relationship, Wall Street investors and love birds each thrive on confidence about the future. Still, in many instances, the love can dissipate in a moment amid uncertainty, fear, and doubt.

Like an unstable relationship, market sentiment can oscillate between euphoria and panic. Conversely, stable relationships are the exact opposite: each partner has high confidence in the other, little doubt about the future, and there are less tumultuous ups and downs.

January Stock Market Review

Last year, Wall Street bulls were rewarded with a landmark year in which the S&P 500 Index gained more than 20%. However, thus far in 2025, Wall Street is acting like the unstable relationship described earlier. The first market heartbreak came from “DeepSeek,” a new “large language model” (LLM) AI platform from China.

AI Stocks Suffer “DeepSeek” Heartbreak

DeepSeek was allegedly able to nearly replicate what OpenAI and Microsoft’s (MSFT) blockbuster Chatbot “ChatGPT” platform could accomplish but at a fraction of the cost. As a result, Nvidia (NVDA), the leading GPU-maker used in AI-data centers, suffered the single largest market cap loss in history.

The recent lack of love for NVDA and other AI stocks may be more profound than the alleged cost of “DeepSeek” though. Below are two reasons why:

1.       DeepSeek Cost is Likely Misleading: A report published by SemiAnalysis suggests that DeepSeek spent over $1 billion to build its computer cluster. Though this indicates that the Chinese are catching up to the US in AI, the US still holds the advantage, and it appears the Chinese had to also spend billions to accomplish a similar outcome.

2.       AI-Related Stocks Were Getting Expensive: For example,Vistra (VST), a utility focused on powering AI data centers, traded at 60x earnings before retreating sharply on the Deepseek news. The top AI stocks remain in long-term uptrends but were due for a pullback. Pullbacks are healthy because they allow valuations to “catch up” to stock price.

Image Source: Zacks Investment Research

Meanwhile, despite all the spooky headlines, Nvidia is still slated to grow earnings by a robust 126.15%, according to Zacks Consensus Estimates.

Palantir Smashes Earnings

Despite the pullback in some leaders, recent price action and earnings data suggest that the current industry leadership may simply be taking a breather and letting valuation catch up while other AI juggernauts take the baton. For instance, last week, Palantir (PLTR), an AI software company that helps governments and organizations integrate, analyze and act on vast amounts of data, beat Zacks Consensus Analyst Estimates for an eighth consecutive quarter.

Image Source: Zacks Investment Research

Bottom Line

Like a rocky romance, Wall Street’s love affair with AI stocks has hit a rough patch, but that doesn’t mean the relationship is over. While Nvidia and other AI giants face temporary setbacks, strong earnings from companies like Palantir suggest the sector is merely taking a breather.

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Microsoft Corporation (MSFT) : Free Stock Analysis Report

NVIDIA Corporation (NVDA) : Free Stock Analysis Report

Vistra Corp. (VST) : Free Stock Analysis Report

Palantir Technologies Inc. (PLTR) : Free Stock Analysis Report

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