Nvidia Stock Plummets Amid Competition from DeepSeek's AI Models

Shares of Nvidia (NASDAQ:NVDA) plunged 16.86% on Monday, wiping out $589 billion in market value, following the debut of DeepSeek's new AI models. The sell-off marked the largest single-day market value loss in history, sending shockwaves through the Nasdaq Composite. DeepSeek, a Chinese start-up, launched its flagship model, DeepSeek R1, claiming it rivals OpenAI's ChatGPT at significantly lower costs.

While Nvidia praised DeepSeek as "an excellent AI advancement" that demonstrates "Test Time Scaling," analysts remain cautious. US Tiger Research questioned Nvidia's ability to sustain capital expenditure growth through 2026, citing uncertainty as a pressure point for its stock price.

DeepSeek's open-source models raised concerns about the massive investments in AI infrastructure by major tech companies. Bernstein analysts acknowledged the models' ability to reduce costs but argued the market reaction was exaggerated. They emphasized that AI infrastructure demand remains robust, with innovations like DeepSeek necessary for the industry’s growth.

Speculation surrounds DeepSeek's claims of using 10,000 NVIDIA A100 chips, with experts like Scale AI CEO Alexandr Wang estimating closer to 50,000 Hopper GPUs. This aligns with Tesla CEO Elon Musk's perspective, suggesting U.S. export controls may limit disclosure.

Despite the competition, Nvidia highlighted the significance of DeepSeek's advancements, stressing that test-time scaling relies heavily on NVIDIA GPUs and advanced networking. Analysts also noted that new AI capacity would likely be absorbed by surging demand, mitigating concerns about oversupply.

Nvidia’s stock struggles reflect broader questions about AI investment sustainability as DeepSeek challenges the market dynamics, pushing innovation and competition to new heights.