NEW YORK — The incredible run of Nvidia’s stock over recent years has grabbed attention, but the dramatic drop on Monday wiped out a staggering $595 billion in value. This loss is roughly equivalent to the combined market capitalization of well-known companies such as PepsiCo, McDonald’s, Starbucks, and Target.
Initially renowned primarily within gaming and cryptocurrency communities, Nvidia surged into the mainstream spotlight as its sales accelerated. The demand for its chips surged, driven by the need for technology capable of training chatbots and other artificial intelligence applications.
Nvidia’s rise has been meteoric, with its stock more than tripling in 2023 and then more than doubling once again in 2024. Investors hailed CEO Jensen Huang, referring to him as the “Godfather of AI.” The company experienced tremendous growth, becoming a powerhouse worth over $3 trillion, occasionally surpassing behemoths like Apple to claim the title of the most valuable entity on Wall Street.
However, the rapid ascent hit a roadblock on Monday when a Chinese company named DeepSeek announced it had developed a large-language model that could rival ChatGPT and other U.S. competitors but required significantly less computing power.
So, how did Nvidia capture the market’s attention? The company’s origins trace back to the gaming industry. Founded in Santa Clara, California, Nvidia revolutionized the PC gaming landscape by inventing the graphics processing unit (GPU) in 1999, reconfiguring the concept of computer graphics. Today, its specialized chips are crucial for powering various artificial intelligence applications, including the latest generative AI platforms such as ChatGPT and Google’s Gemini.
Huang has characterized AI as “the next industrial revolution,” asserting that Nvidia’s GPUs are engineered to execute AI tasks more quickly and efficiently than traditional CPUs. As tech companies increasingly delve into AI, the appetite for Nvidia chips has surged, resulting in revolutionary advancements in automation, content creation, and more.
This demand fueled astonishing revenue growth for Nvidia, with quarterly earnings accelerating remarkably. On February 23, 2023, after exceeding analysts’ profit predictions, Huang stated that “AI is at an inflection point,” with the company’s quarterly revenue reaching $6.05 billion. By May, this figure had surged to $7.19 billion, and just three months later, it nearly doubled to $13.51 billion. The latest figures indicated revenue had skyrocketed to $35.08 billion for the quarter ending October 2024.
As a result, Nvidia’s stock price also saw an explosive increase, quickly outpacing competitors like Intel and Microsoft in market valuation. Remarkably, Nvidia was responsible for more than one-fifth of the total return of the S&P 500 index last year, far outstripping any other stock, including Apple. Today, if you invest in an S&P 500 index fund, almost six cents of every dollar goes exclusively to Nvidia, leaving only 94 cents for all the other companies in the index.
Is Nvidia’s status still intact? Contrary to the dramatic dot-com era, Nvidia’s stock surge has been grounded in substantial financial backing and positive expectations for future growth. However, the announcement from DeepSeek raised concerns over whether corporations might not need to spend as heavily on Nvidia chips moving forward. This uncertainty led to a decline in stocks across the AI sector, affecting suppliers and power companies expected to support expansive data centers built to accommodate these chips. Nvidia, as the flagship representative of the AI boom, was particularly impacted.
Yet, some analysts perceived the nearly 17% drop in Nvidia’s stock on Monday as a buying opportunity rather than a signal of potential failures, suggesting that lower-cost alternatives could attract new clients and lead to innovative software developments beneficial to the industry as a whole.
Experts noted that Nvidia’s situation is reminiscent of other tech stocks that have faced existential questions in the past, citing examples such as Microsoft, Apple, Meta, Google, Amazon, and Netflix—companies that overcame doubt and ultimately bounced back.
While DeepSeek’s emergence injects uncertainty into the AI landscape, many believe that the strong momentum behind artificial intelligence remains intact. According to a strategist from Morningstar, there is still a greater demand for AI GPUs than supply. He indicated that although more affordable models may foster increased development without necessitating additional chips, tech firms will continue to pursue all available GPUs as part of the ongoing AI “gold rush.”
Following the turmoil, Nvidia’s stock experienced fluctuations between gains and losses early Tuesday, marking its most significant decline since the COVID market crash in 2020. However, it recovered somewhat, closing the day nearly 9% higher.