Nvidia’s stock price experienced a significant rebound on Tuesday, rising nearly 9%, following a dramatic 17% plunge the previous day. This prior decline, triggered by concerns over Chinese startup DeepSeek’s new cost-effective AI model, resulted in a record single-day market capitalization loss of nearly $600 billion.
DeepSeek’s announcement of its new AI model, developed at a reportedly lower cost than those of US competitors, sparked anxieties among investors. The concern centered on the potential for DeepSeek’s model to pressure Nvidia’s high GPU prices and diminish overall demand for AI chips. The market reacted strongly, with not only Nvidia but the broader tech sector experiencing significant declines, including a 3% drop in the Nasdaq composite index and widespread losses among chip stocks.
However, Nvidia responded to the news by praising DeepSeek’s R1 model as “an excellent AI advancement,” expressing confidence in its own position. This positive sentiment, coupled with skepticism from several Wall Street analysts regarding DeepSeek’s claimed cost savings, contributed to Tuesday’s stock price recovery. Broadcom, another chipmaker that suffered losses on Monday, also saw a rebound with a 2.6% increase on Tuesday.
Analysts from JPMorgan and Citi questioned DeepSeek’s reported spending of under $6 billion to train its V3 model. They argued that because DeepSeek utilized a “distillation” process, leveraging Meta’s open-source Llama AI model, the stated costs likely did not reflect the full investment. JPMorgan analyst Harlan Sur emphasized the need to validate these costs before drawing conclusions, while Citi analyst Christopher Danley reiterated the expectation of continued strong growth in AI spending.
Despite the skepticism surrounding DeepSeek’s cost claims, Raymond James analyst Srini Pajjuri acknowledged the potential disruptive impact of the Chinese startup. He noted DeepSeek’s apparent ability to develop a highly competitive model despite having less access to computing resources compared to major US tech companies. This observation highlights the ongoing competition and innovation within the AI industry.
This incident underscores the volatile nature of the tech sector, particularly in the rapidly evolving field of artificial intelligence. While DeepSeek’s advancements pose a potential challenge to established players like Nvidia, the long-term implications for the AI landscape remain to be seen. The market’s swift reaction and subsequent recovery highlight the sensitivity of investor sentiment to perceived shifts in competitive dynamics. Furthermore, the debate surrounding DeepSeek’s cost efficiency underscores the complexities of assessing true development costs in the AI industry.
