The release by the Chinese artificial intelligence lab DeepSeek of an AI model that is faster and more efficient than anything currently on the market, and is also free, just sent shockwaves through the AI sector.
Nvidia (NASDAQ:NVDA | NVDA Price Prediction), which has become the face of the AI tech race, got obliterated yesterday. NVDA stock lost $24 per share, a 17% plunge from $142 to $118 a share, wiping away $590 billion in market capitalization.
That is the largest single-day loss by any stock at any time in history, according to Bloomberg.. Nvidia went from being the most valuable company with a $3.5 trillion market cap, to the third-biggest at $2.9 trillion. Worse, NVDA’s performance also evaporated all the gains the stock made since October 2024. It has erased one-fifth of its value now in the past two days.
Remarkably, Nvidia is also actually responsible for eight of the top 10 worst valuation resets in history. Yet is this just the start of further losses for the chipmaker or an overreaction that opens up an opportunity to buy?
The tech sector trembles
It was a red day for the tech sector Monday as DeepSeek’s AI model upended the industry
Nvidia was clearly not alone in the bloodletting that swept the tech sector yesterday. The tech-heavy Nasdaq 100 index slid 3.5% as stocks like Broadcom (NASDAQ:AVGO) also lost 17% of its value, Oracle (NYSE:ORCL) tumbled 14%, and Super Micro Computer (NASDAQ:SMCI) lost 13%.
DeepSeek’s achievement blew U.S. AI model superiority out of the water. It was achieved on cheap, underpower H800 chips from Nvidia, while outperforming across numerous benchmark tests virtually all existing AI models currently operating.
The kicker is that DeepSeek is open-source, meaning it’s free to use, modify, and build upon. The fear is that there is suddenly little incentive for companies to pay $200 per month to use OpenAI’s ChatGPT Pro subscription when a superior product is available for free.
It also seemingly cuts the legs out from under the premium prices Nvidia charges for its most powerful AI accelerators when you can get even better performance from cheaper, more abundant chips.
The outlook certainly doesn’t look good for Nvidia and the existing lineup of AI models, and it calls into question plans like those just unveiled by Meta Platforms (NASDAQ:META) to shovel $60 billion into AI projects this year. But all is not what it seems.
Nvidia puts up a bold front
First, at least publicly, Nvidia isn’t sweating the development. Maybe behind the scenes they are freaking out, but in a statement on DeepSeek’s reveal, the company said, “DeepSeek’s work shows how new models can be created, leveraging widely-available models and compute that is fully export control compliant.”
It is taking the stance that rather than undercutting its growth story, this is actually a net positive for its chip business and it will be able to sell more as more developers adopt this new capability.
Yet there are other reasons this might not be the great undoing of U.S. AI dominance and of Nvidia’s preeminent position in the space. Primarily, there may be very few companies that actually use DeepSeek.
A new national security threat
DeepSeek collects and stores all personal, financial, and operational data users input into the system, making it a potentially major national security risk
We just went through months of debate over the national security concerns surrounding video-streaming service TikTok as essentially Chinese spyware collecting and hoarding information on users. President Trump is still trying to negotiate the sale of the app to American interests.
Yet where TikTok denies its data is stored in China or given access to Beijing, DeepSeek explicitly says it is collecting and storing in China all of the personal information you provide it, including some of the most sensitive such as name, date of birth, email addresses, telephone numbers, and more.
It also collects and stores information about the device you’re using, the operating system, keystroke patterns, and IP addresses, while tracking your usage across devices. It also collects any payment or transaction information you input.
If TikTok was a national security threat to people simply posting videos online, DeepSeek seems like a three-alarm fire for privacy invasion and manipulation. I’d hazard many U.S. and other western enterprises won’t readily give up your data.
Buy the gouge?
Because DeepSeek is open-source, it seems possible and likely domestic developers will quickly be able to recreate similar models that don’t turn over the keys to your financial and personal information to a foreign government.
It’s probably why Nvidia sees it as expanding what’s possible, which would eventually bolster its bottom line. It might have an impact on its pricing premium, but hyperscalers and data centers are still going to want the chipmaker’s most advanced AI accelerators.
This could be a buy the dip moment — let’s call it a “buy the gouge” one — but it might take some time for the dust to settle first before Nvidia resumes a more moderate growth trajectory.
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