nvidia stocks dive as chinese ai rival deepseek surges
Santa Clara, Monday, 27 January 2025.
NVIDIA’s market standing is facing a significant challenge as a new rival emerges from China. DeepSeek, a Chinese AI company, has launched a competitive AI model that has sent shockwaves through the tech industry. NVIDIA shares dropped by nearly 12%, leading a broader tech sell-off. DeepSeek’s model, developed in just two months for under $6 million, reportedly outperforms OpenAI’s latest offerings, further pressuring NVIDIA’s dominance. The company’s innovative approach, using fewer and lower-cost AI chips, has captured the market’s attention. Investors are now questioning the potential overvaluation in AI infrastructure. Concerns are growing about U.S. companies’ ability to maintain a competitive edge as DeepSeek’s advancements reshape the global AI landscape. This shift in dynamics has sparked widespread investor anxiety, with many fearing an AI stock bubble influenced by DeepSeek’s breakthrough.
Market reaction and immediate impact
The tech sector experienced a broad sell-off on January 26, 2025, with NVIDIA leading the decline. The company’s stock plummeted 12% [1], while other tech giants felt the ripple effects - Broadcom lost 12%, AMD fell 4%, and Microsoft dropped 4.3% [7]. The market reaction extended globally, affecting European tech stocks with the Stoxx 600 index dropping 0.69% [7]. The Nasdaq futures lost 4% [6], highlighting investors’ growing concerns about AI sector valuations.
DeepSeek’s technological breakthrough
DeepSeek’s achievement has stunned industry experts. The company developed its AI model R1 in just two months at a cost under $6 million [1], while offering superior performance compared to established competitors [3]. Silicon Valley venture capitalist Marc Andreessen called it ‘one of the most amazing and impressive breakthroughs’ he had ever seen [3]. The company’s efficient approach uses fewer, less powerful AI chips while achieving top-tier performance [3].
Infrastructure and resource advantage
Despite U.S. export restrictions on advanced chips since 2022 [5], DeepSeek has managed to secure significant computing resources. According to Scale AI CEO Alexandr Wang, DeepSeek has access to approximately 50,000 NVIDIA H100 GPUs [5]. This substantial infrastructure, combined with their efficient training methods, enables them to offer their services at just $0.14 per million tokens, compared to OpenAI’s monthly fees ranging from $20 to $200 [3].
Market implications and analyst perspectives
JPMorgan analyst Sandeep Deshpande suggests DeepSeek’s success raises questions about over-hyped AI investment cycles [7]. Raymond James semiconductor analyst Srini Pajjuri noted DeepSeek’s ability to achieve competitive results without access to the same computing resources as U.S. hyperscalers [1]. The development has particularly significant implications for NVIDIA, which currently holds 95% of the data center GPU market [2].