Nvidia’s stock experienced a significant decline, losing $595 billion in market value after a Chinese startup, DeepSeek, announced it had developed a large-language model capable of competing with ChatGPT and other U.S. rivals while consuming substantially less computing power.
Nvidia loses $595 billion after DeepSeek’s AI breakthrough
Nvidia, based in Santa Clara, California, gained prominence through its invention of the graphics processing unit (GPU) in 1999, which designed computer graphics and propelled the growth of the PC gaming market. In recent years, Nvidia’s specialized chips have become essential for various artificial intelligence applications, particularly generative AI chatbots like ChatGPT and Google’s Gemini. The company’s CEO, Jensen Huang, has characterized AI as “the next industrial revolution,” positioning Nvidia’s GPUs as superior for performing AI tasks compared to traditional central processing units (CPUs).
Is Nvidia stock still the AI king or losing its edge: The DeepSeek effect
The demand for Nvidia’s technology led to exceptional revenue growth. The company reported quarterly earnings of $6.05 billion on February 23, 2023, surpassing analysts’ expectations. By May 2023, quarterly revenue had climbed to $7.19 billion, and subsequently surged to $13.51 billion in August 2023. The revenue continued to rise, reaching $35.08 billion in the quarter ending October 2024.
Nvidia’s stock price soared as well, more than tripling in 2023 and doubling again in 2024, establishing Nvidia as a market leader and making it one of the most valuable companies on Wall Street, surpassing tech giants such as Intel and Microsoft. It was reported that Nvidia’s contributions accounted for over a fifth of the S&P 500 index’s total return last year, significantly exceeding any other company.
Concerns raised by DeepSeek’s announcement
The sharp decline of nearly 17% in Nvidia’s stock on Monday stemmed from market concerns triggered by DeepSeek’s claim of developing its free, open-source large language model, which reportedly only required $6 million and was completed in two months. This revelation raised doubts about the necessity for companies to spend on Nvidia chips, impacting Nvidia as the sector’s key player.
Despite some analysts interpreting Monday’s downturn as a potential buying opportunity, skepticism remained regarding Nvidia’s stock stability. Fund manager Dan Niles commented on the situation, stating, “Nobody questions whether Nvidia is the undisputed king and chips. What they’re questioning is how much capex do you need for things like pre-training, post-training and then inference, ultimately.” Niles further warned that investors should be mindful that Nvidia’s revenue growth estimates may need adjustments downward.
In contrast, Nvidia acknowledged the emergence of Chinese competition, describing DeepSeek’s R1 model as “an excellent AI advancement,” and indicating that they view it as an opportunity for their GPUs.
Added to these developments is Nvidia’s relationship with Microsoft, which has heavily invested in AI, including nearly $14 billion into OpenAI, the creator of ChatGPT. Niles noted that Microsoft’s capital expenditures might flatten out soon, indicating a change in their investment approach toward AI.
As Nvidia’s stock showed fluctuations between gains and losses following its significant drop, it ended the subsequent day nearly 9% higher, indicating continued volatility in the market.
Featured image credit: Nvidia
