Why AMD Stock Is Sinking Today

AMD (NASDAQ: AMD) stock is getting hit with sell-offs in Monday's trading. The semiconductor company's share price was down 7% as of 3:45 p.m. ET amid the backdrop of a 1.8% decline for the S&P 500 (SNPINDEX: ^GSPC) and a 3.5% decline for the Nasdaq Composite (NASDAQINDEX: ^IXIC).

AMD stock is losing ground today as investors digest the implications of the latest artificial intelligence (AI) model from DeepSeek -- a Chinese start-up company that's delivering software that outperforms OpenAI's ChatGPT in some respects. The semiconductor specialist's share price is also facing pressure from an increasingly bearish outlook on the Federal Reserve's interest rate policy for this year.

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AMD stock falls on DeepSeek AI concerns

Wall Street is reacting to DeepSeek's new AI model today, and stocks are seeing big sell-offs amid concerns about the U.S.'s competitive positioning against China in the artificial intelligence space. DeepSeek's new software is delivering performance breakthroughs on some fronts and was reportedly developed in less than two months and trained at a cost of only $5.6 million. For comparison, OpenAI's ChatGPT-4 reportedly cost over $100 million to train.

The DeepSeek-R1 model reportedly requires significantly less processing power, cooling, and other resources while being able to deliver results that compare favorably to ChatGPT and other U.S.-developed AI models. DeepSeek-R1 was reportedly developed using Nvidia's A100 processors, which are still quite powerful, but also significantly less advanced than its current top-of-the-line offerings. If the new Chinese AI model were really trained with significantly less powerful hardware than other leading artificial intelligence systems, it raises questions about the growth outlook for Nvidia, AMD, and other players in the processing space.

What comes next for AMD?

In addition to DeepSeek-related pressures, AMD stock is also being pushed lower by macroeconomic dynamics today. New reports suggest that the Federal Reserve will maintain the benchmark interest rate at its current level until the impact of new economic policies from the Trump administration becomes more clear. If the Fed were to pivot from its previous guidance and deliver less than two 25-basis-point rate cuts this year, it could create a more challenging valuation backdrop for AMD and other growth stocks.

With today's pullback, AMD stock is now up just 3.5% over the last three years. The company's share price is also down roughly 46% from its high. The chip specialist's valuation has been under pressure as analysts have become more cautious about its growth outlook in the AI space, and developments related to DeepSeek and shifts in estimated demand for advanced processors could cause more volatility in the near term.

For investors who see promise in the company's long-term growth outlook, the recent pullback could be a buying opportunity -- but there is a significant degree of speculation involved in charting the business's growth trajectory.

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Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices and Nvidia. The Motley Fool has a disclosure policy.