After a turbulent day in the stock market that saw Nvidia’s (NVDA) market capitalization plummet by nearly $600 billion, the tech giant’s stock began its recovery, rising close to 9% on Tuesday. This rebound followed a significant 17% drop the previous day, triggered by growing concerns over a new, cost-effective AI model introduced by Chinese startup DeepSeek.
Investors had been rattled by reports that DeepSeek had developed its latest AI models at a substantially lower cost, using fewer AI chips than typically required. This revelation sparked fears among some Wall Street analysts that U.S. firms might be overspending on artificial intelligence infrastructure, potentially leading to reduced demand for Nvidia’s high-priced GPUs (graphics processing units).
The sharp decline in Nvidia’s stock value marked the largest single-day loss in stock market history. However, the broader impact was felt across the technology sector, with the Nasdaq (^IXIC) dropping by 3% and other semiconductor stocks also experiencing declines.
Despite the market’s reaction, Nvidia remained composed, praising DeepSeek’s R1 as “an excellent AI advancement.” This statement was part of Nvidia’s effort to reassure investors and the public about its position and future in the rapidly evolving AI landscape.
Wall Street analysts continued to delve into the implications of DeepSeek’s advancements on Tuesday. JPMorgan’s Harlan Sur and Citi’s Christopher Danley, in their separate notes to investors, emphasized the need for caution. They pointed out that DeepSeek’s reported cost savings might not fully account for all expenses, as the startup utilized a technique known as “distillation” based on Meta’s (META) open-source Llama AI model.
Sur and Danley urged the investment community to verify these cost claims before drawing any conclusions. Meanwhile, Raymond James analyst Srini Pajjuri noted that despite DeepSeek’s limited computing resources compared to U.S. hyperscalers, the startup managed to develop a highly competitive model.
This development comes at a time when AI is increasingly seen as a critical area of growth. Despite the initial shockwaves caused by DeepSeek’s announcement, experts like Danley believe that AI spending will continue to grow robustly, driven by ongoing advancements and the integration of AI technologies across various sectors.
Looking ahead, the semiconductor industry remains on edge as companies and investors alike gauge the potential impacts of innovations like those introduced by DeepSeek. The situation underscores the competitive nature of the tech industry and highlights the importance of continual investment in research and development to maintain a competitive edge in a market where cost efficiency and technological prowess are paramount.