Nvidia Corp. faced a steep decline in the stock market, faced with worries from investors about DeepSeek, a rising Chinese AI startup, taking a significant hit to its market value. The giant’s shares nosedived by 17% on Monday, marking the harshest drop since March 2020, and resulting in a loss of $589 billion in market capitalization. This fall surpassed its own September record when a 9% drop led to a $279 billion loss and is now noted as the largest in U.S. stock market history.
The impact wasn’t confined to Nvidia alone. Owing to its substantial influence on major indices, Nvidia’s downturn sent shockwaves throughout the market. According to Bloomberg’s data, Nvidia selloffs have accounted for eight out of the ten largest single-day value drops in the S&P 500 Index, with the index declining by 1.5% and the Nasdaq 100 nearly plummeting by 3%.
Stirring this selloff was DeepSeek’s budget-friendly AI approach, which stirred up fears that large U.S. firms had perhaps overly invested in AI technology. This Chinese company is said to offer similar performance levels at a much reduced cost, stirring up the tech sector.
DeepSeek’s latest AI model, revealed just last week, drew comparisons to those from powerhouses like OpenAI and Meta Platforms Inc. Created by quant-fund chief Liang Wenfeng, it swiftly climbed to the top rankings on Apple Inc.’s App Store. Analysts from Jefferies noted in a client memo that the model could disrupt the existing AI business model, which heavily depends on premium chips, substantial computing power, and consequently, elevated energy needs.
Nvidia, which has greatly benefited from the AI spending spree due to its semiconductor designs, might see investor hesitance if returns on investments don’t measure up to expectations. In contrast, Meta is ramping up its AI projects’ capital expenditures this year by nearly 50%, reaching up to $65 billion, propelling its stock to record levels. Additionally, OpenAI, alongside SoftBank Group Corp. and Oracle Corp., announced a $100 billion collaboration named Stargate for developing data centers and AI infrastructure across the U.S.
In response to China’s advancements, the U.S. has imposed export bans on advanced semiconductor technologies and limited the sale of advanced Nvidia AI chips to other countries. Yet, DeepSeek’s strides suggest that Chinese engineers are overcoming these limitations by working smarter with fewer resources.
In a statement on Monday, Nvidia acknowledged DeepSeek’s model as a significant AI progression, clarifying that the Chinese firm hadn’t breached U.S. restrictions in developing its technology. They also emphasized that running AI models, or inference, demands considerable Nvidia GPUs and high-performance networking.
With the assistance of Philip Sanders and Cagan Koc, the update provided further insights into stock movements at the market close and elaborated more on the situation.
