NVIDIA made investors rich–but not today

Nvidia and other major U.S. technology firms experienced sharp declines on Monday as a global sell-off rattled markets.

The catalyst: Chinese startup DeepSeek, whose recent breakthroughs in artificial intelligence have raised concerns about America’s dominance and competitiveness in the sector.

Nvidia Suffers Worst Day Since 2020

Nvidia, the leading chip designer benefiting from the AI boom, saw its stock tumble 17.4%, marking its worst single-day performance since March 2020. Shares hit their lowest levels since October, erasing significant gains from the recent AI surge.

Ripple Effects Across the Market

The sell-off extended beyond Nvidia, with widespread losses in the tech sector:

• Micron Technology and Arm Holdings fell over 10% and 9%, respectively.
• Broadcom dropped more than 16%, and Advanced Micro Devices slid 6%.
• AI-related power infrastructure firms Constellation Energy and Vistra plummeted 19% and 27%, respectively.

International markets also felt the shockwaves:

• Dutch chipmakers ASML and ASM International saw steep declines.
• Japanese chip stocks, including Advantest and Tokyo Electron, dropped significantly.

DeepSeek Challenges U.S. AI Leadership

DeepSeek’s rapid development of a free, open-source large language model at a fraction of the cost of U.S. counterparts has shaken the industry. The company claims it built the model in just two months for under $6 million. Additionally, its latest reasoning model reportedly outperforms OpenAI’s technology in numerous third-party tests.

Prominent venture capitalist Marc Andreessen praised DeepSeek’s breakthrough, calling it a “profound gift to the world.” However, the development has stoked fears about whether U.S. tech giants’ hefty investments in AI are justified and whether the nation’s dominance in AI innovation is under threat.

Experts Respond to DeepSeek’s Impact

According to Srini Pajjuri, a semiconductor analyst at Raymond James, DeepSeek’s achievements may push U.S. tech giants like Amazon and Microsoft to accelerate their AI efforts. These firms rely on cutting-edge GPUs, a sector where Nvidia remains dominant, to maintain a competitive edge.

However, Citi analysts pointed out that access to advanced GPUs remains a barrier for challengers, ensuring U.S. firms retain some advantage. The recent announcement of the $500 billion Stargate AI project highlights the continued importance of high-performance chips in developing advanced AI.

Skepticism About DeepSeek’s Costs

Not everyone is convinced by DeepSeek’s claims. Analysts from Bernstein questioned whether the $6 million cost includes prior research and development. While they acknowledged the quality of DeepSeek’s models, they cautioned against viewing them as “miracles” or seeing the development as the end of the AI infrastructure boom.

Despite skepticism, the emergence of DeepSeek underscores the intensifying competition in AI, reshaping the landscape for tech giants and startups alike.