Nvidia Shorts Made a Killing on the DeepSeek Drop. It May Not Last

Nvidia shorts made a killing on Monday, February 24, 2025, as the stock plunged following the launch of cheaper, open-source AI models by Chinese startup DeepSeek. The smashing debut of these models sparked concerns about the competitiveness of U.S. tech companies in the AI sector and sent Nvidia's stock price tumbling. Short sellers profited significantly from the stock's decline, with record profits totaling over $6 billion. However, the long-term implications of DeepSeek's AI models on Nvidia's stock performance and the competitiveness of U.S. tech companies remain uncertain.



The emergence of cheaper, open-source AI models like DeepSeek's has raised questions about the large amounts of money big tech companies have been investing in AI models and data centers. Nvidia, a major beneficiary of the AI hype, saw its stock price plummet on Monday, with shares touching lows not seen since October. The company's losses helped drive other AI-related stocks and the broader U.S. market down, with chipmakers Broadcom and Advanced Micro Devices losing more than 17% and 6%, respectively.



The launch of DeepSeek's AI models has stoked concerns about the amount of money big tech companies have been investing in AI models and data centers, and raised alarm that the U.S. is not leading the sector as much as previously believed. While DeepSeek's models were developed using widely-available models and compute that is fully export control compliant, they reportedly outperformed OpenAI's latest models in many third-party tests. This development could potentially reduce the demand for Nvidia's high-end GPUs and intensify competition in the AI market.



Nvidia's fundamentals and earnings prospects could be affected by the emergence of cheaper, open-source AI models like DeepSeek's in several ways. The reduced demand for Nvidia's GPUs, increased competition, and potential impact on data center and cloud spending could all negatively impact the company's earnings. However, Nvidia also has the opportunity to adapt and innovate in response to these challenges, potentially leveraging its advantage in access to advanced GPUs to set itself apart from cheaper options.

In conclusion, the emergence of cheaper, open-source AI models like DeepSeek's has the potential to affect Nvidia's fundamentals and earnings prospects by reducing demand for its GPUs, increasing competition, and impacting data center and cloud spending. However, Nvidia also has the opportunity to adapt and innovate in response to these challenges. The long-term implications of DeepSeek's AI models on Nvidia's stock performance and the competitiveness of U.S. tech companies remain uncertain, and investors should closely monitor the situation as it develops.