When markets panic: the cost of emotional investing

The recent market reaction to DeepSeek’s announcement was a classic case of short-term panic versus long-term fundamentals. Nvidia and other AI-related stocks saw a sharp selloff, wiping out $600 billion in market value in just days. But was this reaction based on reality—or was it fear-driven trading at play?

Understanding the real impact of DeepSeek

DeepSeek’s ability to develop large language models (LLMs) with less than 10% of OpenAI’s budget is undeniably impressive. But does that mean the entire AI infrastructure is suddenly obsolete? Hardly. If anything, greater efficiency in AI development expands the market by making advanced technology more accessible, driving broader adoption and increased demand for high-performance computing.

Even industry leaders aren’t seeing this as a collapse of the sector—Sam Altman has framed it as a natural evolution, and even figures like Donald Trump view it as a step toward increased efficiency.

Why panic selling often leads to losses

When Nvidia dropped by 17%, it wasn’t due to a change in its core business, competitive position, or long-term growth prospects. Instead, it was a herd-driven reaction fueled by uncertainty. Historically, these moments of volatility have proven costly for those who sell too soon—while those who stay the course benefit when the market corrects.

Short-term volatility vs. long-term growth

For individual investors, the lesson is clear: markets fluctuate, but fundamentals matter. AI remains one of the defining technological shifts of this decade, and the demand for computing power isn’t going away.

Short-term losses, like the 1-2% drop in major portfolios following this selloff, can feel significant in the moment. But in the long run, the real risk often lies in reacting emotionally rather than sticking to a well-reasoned strategy.

When markets panic, the best question to ask is: Are you investing based on headlines—or long-term potential?