The American company Nvidia, a global leader in artificial intelligence chip manufacturing, has faced a record drop in its stock prices. Amid the sudden rise in popularity of the Chinese artificial intelligence model DeepSeek AI, Nvidia's stock fell by 17.8% in a single day, marking the largest decline since the onset of the pandemic in 2020, a record loss in the company’s history, and one of the most significant in the tech sector in recent years.
The market capitalization of Nvidia decreased by $620 billion following the stock drop, resulting in Nvidia losing its title as the "most valuable company in the world", ceding the position to Apple and Microsoft. Nvidia's CEO Jensen Huang saw a decrease of $21 billion in his personal wealth, bringing it down to $103.1 billion, according to Forbes.
The net worth of the 500 richest individuals globally fell by $108 billion as Nvidia's stock dropped, attributed to the decline in their shares amid the success of the Chinese chatbot DeepSeek-R1, as reported by Bloomberg. The most significant impact was felt by Nvidia's head Jensen Huang, whose wealth decreased by 20% when Nvidia's stock fell.
The development of the DeepSeek chatbot cost the Chinese company approximately 100 times less than the creation of ChatGPT—only $6 million.
The Chinese startup DeepSeek AI introduced a new artificial intelligence model R1, which, according to developers, operates at lower costs and processes requests more efficiently than OpenAI's ChatGPT.
The launch of DeepSeek AI R1 sparked interest worldwide. OpenAI's CEO Sam Altman described the DeepSeek model as "impressive" and noted that it could become a worthy competitor to ChatGPT.
The decline in Nvidia's stock occurred against the backdrop of the launch of the Chinese artificial intelligence model DeepSeek AI, which poses a threat to reshape the market. The updated artificial intelligence model R1 is claimed by the company to be capable of competing with OpenAI's technology.
Model R1 differentiates itself from ChatGPT due to its ability to justify responses to user queries, and its development costs were significantly lower. By January 27, the DeepSeek application surpassed ChatGPT in downloads on the App Store, marking a significant event in the AI industry.
When the company's stock fell, a Nvidia representative stated:
“DeepSeek's work demonstrates new possibilities in AI, but a significant amount of our graphics processors is still required for training and inference of models.”
The company acknowledges the potential of the Chinese startup but emphasizes that Nvidia's high-performance solutions remain essential for large-scale AI projects. As stated by a Nvidia representative:
“DeepSeek is an outstanding achievement in artificial intelligence and a great example of scaling testing time.”
The sudden success of DeepSeek AI triggered a domino effect in the market, forcing investors to rethink the overinflated valuations of companies like Nvidia. Nvidia's stocks did not just drop; they collapsed, followed by declines in the stocks of other major players in the AI sector:
The semiconductor index SOX also dropped by 9.2%, marking the sharpest decline since March 2020 when stocks fell so dramatically.
The effects of the launch of DeepSeek AI R1 were global. In Japan, stocks of chip manufacturers and tech companies also sharply declined:
The crash in Nvidia's stocks stemmed from investors' doubts about whether the company could maintain its leadership in AI technologies. Key aspects that influenced the stock drop include:
The R1 model from DeepSeek AI has already gained recognition for its efficiency and lower development costs. If the company's claims hold true, this could significantly alter the AI market by providing clients with more accessible and effective solutions.
Nonetheless, Nvidia emphasizes that even with the use of DeepSeek technology, a substantial amount of its graphics processors will still be required for model training and inference.
The DeepSeek AI R1 model showcases the ability to perform complex tasks using less powerful chips. According to the company, the model was trained using Nvidia H800 chips with lower specifications, costing only $6 million.
“DeepSeek challenges the massive investments in costly AI infrastructure by offering more economical solutions,” stated Saxo's chief investment strategist Charu Chanana.
Nvidia's stock drop affected the entire tech sector. The S&P 500 index declined by 1.5%, while Nasdaq 100 stocks fell nearly 3%. Analysts continue to debate whether this is a temporary market reaction or the start of a new trend related to shifting dominance in the AI sector.
Expert opinions diverged as Nvidia's stocks fell sharply. Gene Munster, a tech analyst, believes:
“The demand for superior AI hardware will persist. Hyperscale companies and sovereign entities are seeking not cheaper, but faster paths to achieving AGI.”
Despite this, the sudden rise of DeepSeek R1 leads investors to reassess their expectations regarding Nvidia's prospects amid growing competition.
Investors and analysts believe that the situation with Nvidia, following its stock drop and the rise of DeepSeek AI, highlights the risks of excessive concentration of tech stocks in