By Elsa Ohlen

Artificial intelligence stocks were rising early Tuesday, paring some of Monday's massive losses as news out of China of a new low-cost AI model may not be as bad as tech investors first feared.

DeepSeek launched an AI chatbot that quickly climbed to the top of the Apple App Store's most downloaded applications over the weekend. That sparked market panic among investors as it raised the question of whether the U.S.'s AI leadership was in jeopardy.

The initial reaction was "to sell first and ask questions later," said Jay Woods, chief global strategist at Freedom Capital Markets.

On Tuesday, AI stocks were recovering. AI software company Palantir Technologies was up 1.3% in premarket trading, while server maker Super Micro rose 1.6%, and networking equipment company Ciena climbed 4.2%.

The AI trade has largely driven market gains over the past two years, and companies are investing heavily in developing their own AI models, agents, and chips.

Energy stocks closely tied to the AI trade were also rising Tuesday after posting losses of 20% or more on Monday. Constellation Energy's stock climbed 3.2%, while Vistra rose 2.7%. Producer of cooling equipment for data centers Vertiv climbed 1.7%. Their share prices have soared on the back of increased demand for power required to operate AI facilities such as data centers.

While analysts called the market reaction Monday " overblown," President Donald Trump said that DeepSeek was a "wake-up call" for U.S. tech companies.

More efficient computing could enable the development of new applications and services that previously weren't cost-effective, which in turn drives up overall computing demand -- a phenomenon also known as "Jevons Paradox" -- Jefferies analysts said. That puts into question if efficiency improvements for graphics processing units (GPUs) like DeepSeek will actually reduce growth rates for AI companies in the long run.

Chip makers were recovering from a rough day start to the week, too. Nvidia stock was up 3.8% in the premarket, after a 17% drop in the previous session. Marvell Technology rose 3.7% and Broadcom rose 2.6%. Advanced Micro Devices, however, traded largely flat.

Chip manufacturer Taiwan Semi American depositary receipts, or ADRs, rose 2.2% early Tuesday, with gains potentially hampered by President Trump saying late Monday that the U.S. will soon impose tariffs on semiconductors made abroad.

"If you want to stop paying the taxes or the tariffs, you have to build your plant right here in America," Trump said.

Write to Elsa Ohlen at elsa.ohlen@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

January 28, 2025 08:08 ET (13:08 GMT)

Copyright (c) 2025 Dow Jones & Company, Inc.