DeepSeek AI Model Sends Shockwaves Through Nvidia, Slams ETFs

The artificial intelligence (AI) landscape has been shaken by the emergence of DeepSeek, a Chinese startup that has developed a low-cost AI model rivaling those of established players like OpenAI. DeepSeek's AI app, available on Apple's App Store and its website, has taken the market by storm, raising concerns about the long-term demand for high-performance GPUs and the potential impact on tech stocks buoyed by AI promises.



On Monday, DeepSeek's rollout roiled shares of AI stalwarts such as Nvidia, the high-flying manufacturer of advanced chips engineered for AI development, and Dutch company ASML, another chipmaker. The Chinese company's tech is raising questions about whether demand for Nvidia's chips could take a hit, as well as whether investors are overvaluing tech stocks that have been buoyed by the promise of AI, from Meta to Microsoft, experts said.

"DeepSeek has taken the market by storm by doing more with less," said Giuseppe Sette, president at AI market research firm Reflexivity, in an email. "This shows that with AI the surprises will keep on coming in the next few years."

DeepSeek's latest app comes just days after former U.S. President Donald Trump announced a new $500 billion venture with ChatGPT maker OpenAI, Softbank, and Oracle, dubbed Stargate. AI-related stocks took a hit on Monday morning, with Nvidia shares tumbling 14.5% as of 11 a.m. ET, while ASML shed 6.7%. The tech-heavy Nasdaq index slumped 2.9% in early trading, while the S&P 500 declined 1.7%.

Exchange-traded funds (ETFs) with leveraged exposure to Nvidia also experienced a dramatic Monday. The GraniteShares 2x Long NVDA Daily ETF (NVDL) plunged 34.55%, while its leveraged inverse counterpart, the Graniteshares 2x Short NVDA Daily ETF (NVD), soared 34.69%. The ProShares Ultra Semiconductors ETF (USD), which holds more than 40% of its assets in Nvidia, dropped by more than 27%. The Vanguard Information Technology Index Fund, where Nvidia is the second-largest holding at nearly 15% of the portfolio, shed 4.7%. The VistaShares Artificial Intelligence Supercycle ETF (AIS), which has only 3% of its assets in Nvidia but holds other AI stocks, lost 8.43%.



DeepSeek's emergence has raised questions about the long-term impact of a low-cost AI tool from China that rivals ChatGPT and other so-called generative AI apps. It also raises concerns about whether Silicon Valley is overspending on tech advancements in the AI sector. Wedbush Securities analyst Dan Ives has expressed skepticism about the service's ability to gain ground with major U.S. businesses, stating, "No U.S. Global 2000 is going to use a Chinese startup DeepSeek to launch their AI infrastructure and use cases." However, the potential for AI companies to become less dependent on hardware and more on software innovations, as demonstrated by DeepSeek, could still impact Nvidia's sales growth and margins.

In conclusion, DeepSeek's low-cost AI model has sent shockwaves through the tech industry, particularly affecting Nvidia and AI-related ETFs. As the market reassesses the AI sector, investors will need to consider the potential long-term implications for hardware demand and tech stock valuations. The competitive landscape in the AI sector has evolved, and other AI companies like OpenAI and Google may need to adapt their strategies to maintain their market positions.