$600B wipeout! Why NVIDIA investors are nervous about DeepSeek AI
What's the story
NVIDIA, the leading semiconductor giant, has witnessed a massive decline in its stock value after the launch of Chinese AI start-up DeepSeek's R1 model. The company's shares plummeted by nearly 17% on Monday, translating into a jaw-dropping loss of nearly $600 billion from NVIDIA's market cap, a record decline for any company on Wall Street. Nasdaq declined 3.1% on Monday. Mimicking NVIDIA, chipmaker Broadcom crashed 17.4%, followed by Microsoft and Google parent Alphabet, which fell 2.1% and 4.2%, respectively.
Market shift
DeepSeek's R1 model challenges NVIDIA's dominance
The launch of DeepSeek R1—a free, open-source model—has fueled speculation about its potential to shake NVIDIA. The AI model runs with fewer resources and compute power than its US counterparts, questioning the necessity of high-end chips like those manufactured by NVIDIA. By Monday, the DeepSake app had overtaken US rivals ChatGPT and Gemini in downloads from Apple's app store. An NVIDIA representative recognized DeepSeek as "an excellent AI advancement and a perfect example of Test Time Scaling."
Policy impact
US AI chip export restrictions and market reactions
The market shift comes as former President Joe Biden's executive order limiting the export of advanced AI chips from the US to select countries, including China where DeepSeek is based. NVIDIA had previously slammed this order as "unprecedented and misguided." The company warned it could "derail" global innovation and economic growth. Despite the market's reaction to DeepSeek's launch, some industry insiders view this as an opportunity to buy high-quality tech shares at lower prices.
Tech breakthrough
DeepSeek's R1 model: A game-changer in AI technology
DeepSeek's R1 model is intended for mobile phones and PCs, making it a competitor to ChatGPT, Meta AI, and Google's Gemini. The model's launch has been described as a major breakthrough in AI technology. Silicon Valley venture capitalist Marc Andreessen compared its impact to the beginning of the space race in the late 1950s, calling it AI's "Sputnik moment."