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NVIDIA Stock Crashes: DeepSeek’s AI Breakthrough Stuns Wall Street

NVIDIA Stock Crashes: DeepSeek’s AI Breakthrough Stuns Wall StreetNVIDIA Stock Crashes: DeepSeek’s AI Breakthrough Stuns Wall Street
NVIDIA's stock down after enjoying a top company reputation in 2024.

Published On: January 28th, 2025

On January 27, 2025, NVIDIA Corporation experienced an unprecedented decline in its stock value, shedding nearly $600 billion in market capitalization. This historic drop was primarily attributed to the emergence of DeepSeek, a Chinese artificial intelligence (AI) startup that introduced a competitive AI model developed at a fraction of the cost incurred by its Western counterparts.

Important facts and figures

Stock performance: NVIDIA’s shares plummeted more than 17% on January 27, marking the company’s worst single-day percentage loss since March 2020. The market capitalization decreased from $3.5 trillion to $2.9 trillion, dethroning NVIDIA as the world’s most valuable company. 

Industry impact: The tech-heavy Nasdaq Composite fell 3.1%, with significant declines in other AI-related stocks. Broadcom Inc. dropped 17.4%, while Microsoft and Alphabet saw decreases of 2.1% and 4.2%, respectively. 

DeepSeek’s achievement: DeepSeek developed its AI model in two months for under $6 million, utilizing less powerful AI chips and showcasing significant engineering innovation. The model has surpassed OpenAI’s ChatGPT as the top app on the U.S. App Store. 

Current situation

DeepSeek, founded in 2023 in Hangzhou, China, has rapidly ascended in the AI industry by releasing an open-source model, DeepSeek-R1, that rivals leading AI models from Western companies like OpenAI. Notably, DeepSeek achieved this with limited resources, spending less than $6 million and utilizing less powerful AI chips, highlighting an alternative approach to AI development. 

The release of DeepSeek’s AI model has raised concerns among investors about the future demand for NVIDIA’s high-performance graphics processing units (GPUs), which have been integral to AI model training. The apprehension stems from the possibility that companies might adopt more cost-effective methods, potentially reducing reliance on NVIDIA’s premium products. 

Analysis and implications

The market’s reaction underscores the sensitivity of tech stocks to innovations that could disrupt established business models. While DeepSeek’s achievement is noteworthy, some analysts believe the market response may be an overreaction. They argue that despite DeepSeek’s efficient approach, the demand for high-performance GPUs remains robust, especially for large-scale AI applications. NVIDIA’s GPUs continue to be favored for their performance and reliability in complex AI tasks. 

Industry insiders have offered varied perspectives. OpenAI CEO Sam Altman acknowledged DeepSeek’s model as “impressive” but emphasized that OpenAI plans to deliver superior models in the future. He highlighted the importance of substantial computational resources in achieving advanced AI capabilities. 

For investors, the situation presents both challenges and opportunities. The immediate decline in NVIDIA’s stock reflects concerns over potential shifts in the AI hardware market. However, the broader demand for AI technologies continues to grow, suggesting that companies like NVIDIA may adapt and find new avenues for growth. Some analysts view the recent sell-off as a potential buying opportunity, given NVIDIA’s strong position in the AI sector. 

Final thoughts

NVIDIA’s recent stock decline highlights the dynamic nature of the AI industry, where rapid innovations can significantly impact market leaders. While DeepSeek’s cost-effective AI model has introduced new competitive pressures, the long-term implications for NVIDIA and similar companies will depend on their ability to innovate and meet evolving market demands. Investors should monitor developments closely, considering both the risks and potential opportunities in this rapidly changing landscape.
 

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