At the start of the week, Chinese AI startup DeepSeek sent shockwaves through the markets by launching an AI model that allegedly requires just 1/7 of the computing power used by its Western counterparts while delivering comparable or even superior performance. This raised concerns among investors that Big Tech’s massive AI infrastructure spending—which has fueled semiconductor giants like Nvidia—might be unjustified, potentially curbing future investments. The reaction was swift, with Nvidia stock plummeting 17% in a single session.

Despite the market panic, Oppenheimer analysts remain unfazed. They argue that even if DeepSeek's model proves more efficient, it doesn’t necessarily mean that AI investments will dry up. Instead, they see the recent selloff as a buying opportunity, particularly for Israeli chip stocks like Nova, Camtek, and Tower Semiconductor.

"Oppenheimer: "The Market Overreacted—Israeli Chip Stocks Could Benefit

"Tech stocks on Wall Street saw aggressive selloffs following the launch of DeepSeek’s AI model, which claims to deliver competitive performance at significantly lower costs," Oppenheimer analysts wrote. "Fears of increased competition and a slowdown in AI spending led to sharp declines across AI-focused semiconductor stocks such as NVIDIA Corp. , Broadcom -0.24%  , and Marvell Technology Group Ltd. 4.58%  . This wave of selling also hit Israeli semiconductor stocks, including Nova Measuring Instruments Ltd. , Camtek Ltd. 13.65%  , and Tower Semiconductor 1.49%  ."

DeepSeek introduced two open-source AI models, V3 and R1, which reportedly cut AI training costs by 95% compared to leading models like ChatGPT, Gemini, Claude, Llama, and Grok. While verifying these claims is difficult, Oppenheimer analysts believe that DeepSeek likely relied on less advanced AI chips, which are not subject to U.S. export restrictions, and optimized computing efficiency using task splitting, memory utilization, and streamlined model architectures. The tradeoff? Lower precision in AI responses—but at a fraction of the cost. This sparked concerns that AI infrastructure spending—long seen as a growth engine for chipmakers—could slow down, triggering the sharp market reaction.

However, Oppenheimer sees a different angle. "Even if these fears are justified, lower AI processing costs could actually accelerate demand for AI-powered devices, ultimately driving semiconductor growth. The global chip market has faced prolonged weakness for two years, with AI semiconductors standing out as a rare bright spot. Expanding AI adoption could fuel overall semiconductor demand, benefiting not only chipmakers but also chip equipment suppliers."

They add that long-term AI investment plans by cloud giants and semiconductor manufacturers (led by TSMC) are unlikely to be derailed by short-term market volatility. "We view the selloff in Israeli chip stocks as a compelling opportunity and expect strong earnings reports to drive a sentiment shift, leading to a stock price recovery."

Oppenheimer Upgrades Nova, Reaffirms Bullish Calls on Tower and Camtek

"We believe the sharp declines reflect an overreaction based on overly pessimistic expectations for AI infrastructure investments," Oppenheimer stated. "Alongside our U.S. semiconductor research team, we see DeepSeek’s AI efficiency as a potential catalyst for AI chip investments rather than a headwind. Lower AI model costs could expand demand for AI-capable devices, revitalizing the entire semiconductor industry, which has struggled outside the AI data center space."

The analysts emphasize that market selloffs driven by panic often create long-term buying opportunities. "We maintain our Outperform ratings on Tower Semiconductor and Camtek, with price targets of $60 and $100, respectively, reflecting upside potential of roughly 20% from current levels. Additionally, we are upgrading Nova from Perform to Outperform, with a price target of $250—an 8% upside from its latest closing price."