Nvidia (NASDAQ: NVDA), the artificial intelligence (AI) giant, is on a downward spiral as investors react to the possibility of AI spending cuts following the launch of Chinese startup DeepSeek.
In pre-market trading on January 27, NVDA’s stock price fell as much as 10.14% to $128, extending the stock’s losses from recent sessions.
Why is NVDA stock correcting?
Nvidia’s continued decline is due in part to recent breakthroughs by DeepSeek, which introduced AI models, most notably the DeepSeek R1. These models have reportedly achieved similar performance levels to entities like OpenAI’s ChatGPT.
The key development in this scenario is DeepSeek’s claim that this performance has been achieved at a fraction of the cost compared to market giants while taking advantage of less advanced hardware.
Notably, DeepSeek trained its R1 model using Nvidia’s previous generation H800 GPUs. This revelation has raised concerns about the necessity of sophisticated and high-cost AI infrastructure.
As a result, there is speculation that other AI developers may follow suit, which could reduce demand for Nvidia’s more advanced products.
Nvidia’s emergence as the top AI company has been fueled by strong demand for its A100 and H100 Tensor Core GPUs, which power large AI models like ChatGPT training and inference.
DeepSeek’s unveiling comes at an interesting time, as the market anticipates the impact of Nvidia’s next-generation Blackwell chips. These chips have already sold out, and Wall Street analysts predict they could become a big cash cow for the tech company.
Meanwhile, DeepSeek seems to be enjoying positive reception in the market. Its app took first place as the most downloaded free app on the App Store, with users praising its easy-to-use API experience and lack of pricing issues.
Wall Street reacts to the launch of DeepSeek
Some analysts believe that although the Chinese company has achieved great achievement, the market reaction may be exaggerated.
Specifically, Bernstein analysts praised DeepSeek’s new AI models for their capabilities, but warned that the market response is overblown. They stressed that innovations like DeepSeek are vital to improving existing hardware, but noted that the growing demand for artificial intelligence would absorb any new computing capacity.
Bernstein dismissed “doomsday scenarios” circulating online and affirmed Nvidia’s “outperform” rating, citing the company’s strong AI prospects.
Likewise, banking giant JPMorgan (NYSE: JPM) It was rejected Concerns about rising AI budgets as “exaggerated”. The company stressed that the emergence of DeepSeek can be attributed to necessity, considering US export controls on Chinese chipmaking amid the AI arms race.
With mixed reactions to the potential shift in AI spending, it remains to be seen how DeepSeek’s performance will impact the broader tech sector and the potential ramifications for Nvidia’s stock and financials.
However, Nvidia will likely continue to leverage its broad portfolio of products, targeting future growth areas such as quantum computing.
For example, the company’s CUDA-Q platform allows developers to simulate quantum algorithms on GPUs before deploying them on physical quantum processing units. Part of the market expects that this project could help push the company towards a market value of $10 trillion.
Featured image via Shutterstock
