Nvidia’s Historic Stock Market Loss Amid Deepseek’s AI Breakthrough

Deepseek : Nvidia's Historic Stock Market Loss Amid Deepseek's AI Breakthrough

On Monday, the stock market saw a historic loss when nearly $600 billion was wiped out from Nvidia’s market value. This marked the largest single-day loss in the history of the US stock market. The main reason for this dramatic drop was the unexpected success of the Chinese AI platform, Deepseek.

Last week, Deepseek introduced an open-source model that is reportedly more efficient and significantly cheaper than US competitors like ChatGPT or AI models from Meta and Google. The new AI app has already climbed to the top of Apple’s App Store rankings.

This development caused doubts about the extremely high valuations of tech companies like Nvidia. Nvidia’s chips have been seen as crucial for advancing AI systems. The US recently announced the “Stargate” project, planning to invest $500 billion in data centers over the coming years to foster AI innovation. Meta alone aims to invest $60 billion in AI this year, which seemed to secure Nvidia’s future.

However, Deepseek demonstrated that AI developments could also be achieved on a much smaller scale. Unconfirmed reports suggest that Deepseek’s development cost only $5.6 million, using only a few Nvidia chip systems for training. If this becomes the new standard, Nvidia’s sales prospects might be significantly lower than previously thought.

The stock market turmoil on Monday affected not only Nvidia but also other chip manufacturers. Broadcom’s stock, for instance, dropped by about 17 percent. The stock of the Dutch company ASML, which produces machines for making the fastest chips, fell by 8 percent. The tech stock index Nasdaq fell by about three percent overall.

Companies meeting the high energy demands of the AI industry also suffered. Constellation Energy’s stock fell by over 20 percent, and Vistra’s stock plunged by 28 percent. Siemens Energy, which supplies major data center operators with power semiconductors, saw its stock drop by 20 percent due to Deepseek’s success.

US President Donald Trump commented that Deepseek’s release should serve as a “wake-up call” for American industries to remain highly competitive. The shock might have positive effects on Silicon Valley by forcing innovation with lower expenses.

US economist Ed Yardeni sees the success of the Chinese as bad news for the “Magnificent Seven”—Apple, Microsoft, Nvidia, Amazon, Alphabet, Meta, and Tesla—who intended to dominate the AI market with their expensive services. These companies have a strong influence on the Nasdaq and the US S&P 500 index.

For some time, analysts have warned of an overvaluation of AI stocks, whose recent gains were driven more by investor optimism than actual or projected earnings. Nvidia’s stock, among others, experienced a high rise last year due to AI hype. The 100 companies in Nasdaq are on average valued at 27 times their expected earnings in the next twelve months.

Ray Dalio, founder of the hedge fund Bridgewater Associates, draws parallels to the dot-com bubble era. He told the Financial Times that investor enthusiasm for AI has led to a bubble in US stocks reminiscent of the dot-com crash around the turn of the millennium. “Prices have risen to a high level while there is also interest rate risk, and this combination could burst the bubble,” Dalio said.

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