Nvidia Stock Plummets Amid China's DeepSeek AI Threat

Nvidia Corporation (NVDA) shares tumbled over 11% in early trading on Monday, January 27, 2025, as investors reacted to the emergence of China's DeepSeek AI startup. The company's stock price fell to $126.50, marking a significant decline from its recent highs. This sell-off comes amidst concerns that DeepSeek's affordable AI model could impact the demand for Nvidia's high-end GPUs, which are crucial for training advanced AI models.



DeepSeek, a Chinese AI startup, has released a large language model (LLM) that performs comparably to OpenAI and other AI systems despite U.S. government restrictions on exports of advanced chips. On January 20, DeepSeek released another LLM that it said was trained at a fraction of the cost of AI systems from OpenAI, Alphabet's (GOOGL) Google, Meta Platforms (META), and other U.S. companies. The Wall Street Journal reported on the AI phenomenon on Sunday.

The emergence of DeepSeek has raised questions over the computing power needed to develop AI systems, a key driver for AI stocks. Analysts are now wondering how DeepSeek's emergence might impact compute intensity growth and the demand for hardware/semiconductors, including Nvidia's GPUs.

"DeepSeek clearly doesn't have access to as much compute as U.S. hyperscalers and somehow managed to develop a model that appears highly competitive," said Raymond James analyst Srini Pajjuri in a Sunday report. "The natural question is, how would DeepSeek's emergence impact compute intensity growth and the demand for hardware/semiconductors?"

Further, DeepSeek has claimed it spent only $5.6 million over two months to develop its latest AI model, noted economist Ed Yardeni in a report published on Sunday. Meanwhile, DeepSeek's success could weigh on U.S. earnings reports, Yardeni said, amid enormous capital spending increases by Google, Meta, Microsoft (MSFT), and others. Microsoft is the biggest investor in OpenAI.

"This might be bad news for the Magnificent 7 that had plans to dominate the AI market with their expensive AI services," Yardeni added. "The question is whether they will disappoint because their capital spending on AI is soaring faster than are their revenues. That could squeeze their collective profit margin."

He says chipmaker Nvidia also could be impacted if customers need fewer and less sophisticated chips. "It might be good news for the Mag-7 that can learn from DeepSeek to design AI systems with cheaper GPUs. That would reduce their capital spending and boost their profits. It might not be a happy development for Nvidia," Yardeni added.

Microsoft and Meta report fourth quarter results on January 29. Google earnings are due February 4. Amazon will likely follow on February 6.



In conclusion, Nvidia's stock price has plummeted amidst concerns over the emergence of China's DeepSeek AI startup. The affordable AI model developed by DeepSeek has raised questions about the demand for Nvidia's high-end GPUs, which are crucial for training advanced AI models. Investors are now wondering how DeepSeek's emergence might impact compute intensity growth and the demand for hardware/semiconductors, including Nvidia's GPUs. As the tech industry awaits earnings reports from major players, the market will closely watch Nvidia's response to this new threat and its potential impact on the company's long-term revenue growth and market share.