AI Shock: Powell Blames Market Sell-off on Chinese AI Models

Federal Reserve Chair Jerome Powell has weighed in on the recent stock market sell-off, attributing it to concerns surrounding the artificial intelligence (AI) sector rather than a persistent shift in investor sentiment. Powell, speaking at a conference in Washington, D.C., emphasized that the market correction was likely a temporary reaction to the release of low-cost Chinese AI models, such as DeepSeek, which have raised questions about the competitive landscape in the AI sector.

Powell's comments come as markets have been grappling with the implications of DeepSeek and other low-cost AI models on companies like Nvidia, a leading AI chipmaker. The release of these models has sparked uncertainty and volatility in the market, as investors assess the potential impact on AI chip demand and the broader technology sector.

Fundstrat chief investment officer Tom Lee has echoed Powell's sentiments, describing the market sell-off as an overreaction to the DeepSeek announcement. In an interview on CNBC's "Closing Bell," Lee suggested that the market correction presents an opportunity for long-term investors, noting that the decline in Nvidia's stock price is reminiscent of the market conditions in March 2020, which ultimately proved to be a buying opportunity.

Lee also expressed confidence in the financial sector's prospects for 2025, citing a dovish Fed, low yields, and the potential for increased capital markets activity. He believes that financials remain the top S&P sector idea for the year, given the favorable fundamentals and low multiples.

As the market continues to digest the implications of the AI sector developments, investors and analysts alike are keeping a close eye on the situation. While the recent sell-off has raised concerns, Powell's comments and Lee's analysis suggest that the market may be overreacting to the short-term uncertainty, and that long-term opportunities may be presenting themselves.