Nvidia, the world’s largest company by market capitalization just days ago, suffered its biggest single-day market cap decline in history on Monday, shedding a staggering $465 billion as its stock plummeted nearly 17%. The sell-off was triggered by growing concerns over the rise of cost-efficient artificial intelligence models, particularly from Chinese startup DeepSeek, whose latest innovation has sent shockwaves through the tech industry and upended investor confidence in AI-driven stocks.
According to Daniel Newman, NVIDIA issues a statement on DeepSeek: “DeepSeek is an excellent AI advancement and a perfect example of Test Time Scaling. DeepSeek’s work illustrates how new models can be created using that technique, leveraging widely available models and compute that is fully export control compliant. Inference requires significant numbers of NVIDIA GPUs and high-performance networking. We now have three scaling laws: pre-training and post-training, which continue, and new test-time scaling.”
DeepSeek’s low-cost AI model shakes the market
DeepSeek, a relatively unknown Chinese AI firm founded in 2023 by hedge fund manager Liang Wenfeng, unveiled its latest AI model, DeepSeek-V3, last week. The model, which reportedly cost just $5.6 million to train, has been hailed as a breakthrough in AI efficiency. By comparison, OpenAI’s GPT-4 model cost over $100 million to develop. DeepSeek’s ability to achieve comparable performance at a fraction of the cost has raised questions about the future of AI infrastructure investments, particularly for companies like Nvidia, whose high-end chips power many of the world’s most advanced AI systems.
“If DeepSeek’s innovations are adopted broadly, an argument can be made that model training costs could come down significantly,” wrote Raymond James semiconductor analyst Srini Pajjuri in a note to investors. This has led to fears that the demand for Nvidia’s chips, which have been central to the AI boom, could decline as companies seek more cost-effective alternatives.
How DeepSeek triggered Nasdaq’s 4.5% drop, Dow’s 430-point slide, and S&P’s 2.3% loss
A ripple effect across the tech sector
The impact of DeepSeek’s announcement was felt across the tech sector, with chip stocks and AI-related companies experiencing sharp declines. Broadcom shares fell over 18%, Micron dropped nearly 13%, and Advanced Micro Devices slid more than 6%. Meanwhile, tech giants like Microsoft, Alphabet, and Meta saw their shares drop by 2.5%, 4%, and 3%, respectively. In Europe, Dutch chip equipment maker ASML saw its shares fall by more than 7%, while Siemens Energy, a hardware manufacturer tied to AI infrastructure, plunged by 20%.
The sell-off wiped out approximately $1 trillion in market value from U.S. tech companies, marking one of the most significant single-day declines in recent history. The Nasdaq Composite Index fell 4.5%, its worst day since March 2020, when the COVID-19 pandemic rattled global markets.
Geopolitical tensions and AI’s future
DeepSeek’s rise comes amid escalating geopolitical tensions between the U.S. and China over AI dominance. The U.S. has imposed strict export restrictions on advanced chips and chipmaking equipment to China, aiming to curb its AI development. However, DeepSeek’s success suggests that Chinese firms are finding ways to innovate despite these limitations. The company reportedly stockpiled Nvidia A100 chips before the export ban and combined them with lower-end chips to develop its models.
President Donald Trump’s recent announcement of the $500 billion Stargate AI project, aimed at bolstering U.S. AI infrastructure, underscores the high stakes of this competition. Yet, DeepSeek’s low-cost model has cast doubt on whether such massive investments are necessary. “DeepSeek has taken the market by storm by doing more with less,” said Giuseppe Sette, president of AI research firm Reflexivity.
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Uncertainty looms for AI investments
The rapid rise of DeepSeek has introduced significant uncertainty into the AI market. While some analysts argue that cheaper training costs could democratize AI and spur broader adoption, others worry that the massive investments made by U.S. tech giants could become obsolete. “This idea of a low-cost Chinese version hasn’t necessarily been forefront, so it’s taken the market a little bit by surprise,” said Fiona Cincotta, senior market analyst at City Index.
For Nvidia, the stakes are particularly high. The company’s stock has been a darling of the AI boom, but DeepSeek’s innovations threaten to disrupt its dominance. “DeepSeek could potentially derail the investment case for the entire AI supply chain,” said Singapore-based technology equity adviser Vey-Sern Ling.
As the dust settles, one thing is clear: the AI is evolving faster than anyone anticipated. DeepSeek’s rise has not only challenged the economic assumptions underpinning the AI boom but also highlighted the fierce competition between the U.S. and China in shaping the future of technology.
Featured image credit: Kerem Gülen/Ideogram
