Nvidia stock plunges after DeepSeek AI breakthrough

DeepSeek challenges Nvidia’s dominance with efficient AI technology.

Nvidia CEO Jensen Huang delivers his keynote presentation at CES 2025 in Las Vegas, Nevada, on January 6, 2025. Photo by Artur Widak/Nur/Getty Images

By Laila Azzahra and Alana Salsabila

Nvidia, the leading player in AI chip technology, has faced a sharp market correction following a groundbreaking announcement by DeepSeek, a small Chinese tech firm. On Monday, Nvidia’s stock plummeted 17%, erasing $600 billion from its market value, after DeepSeek demonstrated that it could train a state-of-the-art AI system with significantly fewer Nvidia chips than previously thought necessary. This marks Nvidia’s worst trading day since the pandemic sell-off in March 2020.

DeepSeek’s innovation has upended the long-held belief in the tech industry that building advanced AI systems requires massive investment in Nvidia chips. Historically, these chips have been the backbone of data centers powering AI systems like OpenAI’s ChatGPT. Nvidia currently dominates the market for AI-specific chips, with an estimated 90% share, and has seen its valuation soar by 700% in two years, peaking at $3.62 trillion in November. However, DeepSeek’s efficiency breakthrough casts doubt on the future demand for Nvidia’s products.

DeepSeek’s release directly challenges the “bigger is better” mindset in AI development. For years, companies have followed Scaling Laws, a concept emphasizing that more data and larger computational models lead to better AI performance. However, as the availability of new data dwindles, the tech industry has begun exploring alternative methods to improve AI systems.

DeepSeek’s success reflects this shift, demonstrating that cutting-edge AI systems can achieve exceptional performance with fewer computational resources. This development could reshape how companies approach AI model training and deployment, ultimately affecting Nvidia’s business model.

Patrick Moorhead, CEO of tech research firm Moor Insights & Strategy, described the implications: “Before, AI was about building bigger, faster, and more powerful systems. But this breakthrough raises questions about Nvidia’s long-term dominance and the necessity of their chips in large quantities.”

Despite this setback, Nvidia maintains a strong position in the AI market. Its chips are still critical for many applications, and CEO Jensen Huang has emphasized their importance in driving new techniques that improve AI capabilities. At the CES technology trade show in January, Huang stated that these advancements create new opportunities for Nvidia’s technology.

In response to DeepSeek’s announcement, Nvidia spokesperson Mylene Mangalindan acknowledged the achievement:
“DeepSeek is an excellent AI advancement that demonstrates the power of innovative techniques.”

However, investors remain wary of how this paradigm shift could impact Nvidia’s profitability. The news also dragged down shares of other semiconductor companies, including Broadcom, Micron Technology, and Taiwan Semiconductor Manufacturing Company.

Some analysts are skeptical about the full implications of DeepSeek’s release. Stacy Rasgon, a semiconductor analyst at Bernstein Research, suggested that DeepSeek likely spent more resources on its system than publicly disclosed. He added that increased efficiency in AI development could lead to broader adoption, which might benefit Nvidia in the long run.

“This seems overblown,” Rasgon wrote in a note to investors. “Efficient AI systems may drive demand as more companies can afford to enter the market.”

A volatile market for AI leaders

The dramatic fluctuations in Nvidia’s stock reflect the broader uncertainty surrounding AI technology’s impact on the market. Over the past year, major tech companies like Microsoft, Apple, and Nvidia have jockeyed for the position of the world’s most valuable company, driven by their investments in AI.

Last June, Nvidia briefly surpassed Apple and Microsoft in valuation, propelled by its leadership in AI chip development. However, Apple has since regained the top spot after launching its own AI system, Apple Intelligence, for iPhones. Despite this, Apple’s momentum has slowed due to issues with its software misrepresenting news content, signaling that the race for AI dominance is far from over.

Daniel Newman, CEO of the tech research firm Futurum Group, highlighted the broader implications of the AI market’s volatility:
“There hasn’t been a clear winner in the AI race. The tools are improving, but if companies like DeepSeek can deliver better results at lower costs, it could significantly shift adoption patterns.”

While Nvidia’s future remains uncertain, the company’s history of resilience suggests it is well-positioned to adapt to changing market dynamics. Its ability to innovate and meet evolving industry needs will determine whether it can maintain its leadership in the AI sector.

For now, DeepSeek’s breakthrough has underscored the potential for smaller players to disrupt established markets. As AI development becomes more efficient and accessible, the industry may see a more competitive landscape, with new entrants challenging the dominance of established giants like Nvidia.

Share