Nvidia (NASDAQ: NVDA), the artificial intelligence (AI) titan, is on a downward spiral as investors react to the possibility of reduced spending in AI following the launch of Chinese start-up DeepSeek.
In pre-market trading on January 27, NVDA’s share price dropped as much as 10.14% to $128, extending the stock’s losses from recent sessions.
Why NVDA stock is correcting
Nvidia’s ongoing decline has been partly triggered by recent breakthroughs from DeepSeek, which introduced AI models, notably DeepSeek R1. These models have reportedly achieved performance levels comparable to entities such as OpenAI’s ChatGPT.
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The key development in this scenario is DeepSeek’s claim that this performance was achieved at a fraction of the cost compared to market giants while leveraging less sophisticated hardware.
Notably, DeepSeek trained its R1 model using Nvidia’s previous-generation H800 GPUs. This revelation has raised concerns about the necessity of high-end, high-cost AI infrastructure.
As a result, there is speculation that other AI developers might follow suit, potentially reducing demand for Nvidia’s most advanced products.
Nvidia’s emergence as the top AI company has been fueled by significant demand for its A100 and H100 Tensor Core GPUs, which power large AI models such as ChatGPT training and inference.
DeepSeek’s revelation comes at an intriguing time, as the market anticipates the impact of Nvidia’s next-generation Blackwell chips. These chips have already sold out, and Wall Street analysts project they could become a major cash cow for the tech firm.
Meanwhile, DeepSeek seems to be enjoying a positive market reception. Its application has claimed the top spot as the most downloaded free app on the App Store, with users praising its user-friendly API experience and lack of rate limit issues.
Wall Street reacts to DeepSeek launch
Some analysts believe that while the Chinese firm has achieved a significant milestone, the market reaction might be exaggerated.
Specifically, Bernstein analysts praised DeepSeek’s new AI models for their capability but warned that the market’s response is overblown. They emphasized that innovations like DeepSeek are vital for optimizing existing hardware but noted that growing AI demand would absorb any new computing capacity.
Bernstein dismissed “doomsday scenarios” circulating online and reiterated an “Outperform” rating for Nvidia, citing the company’s strong AI prospects.
Similarly, banking giant JPMorgan (NYSE: JPM) dismissed concerns over rising AI budgets as “overdone.” The firm stressed that DeepSeek’s emergence could be attributed to necessity, considering the U.S. export controls on China’s chip industry amid the AI arms race.
With mixed reactions to a possible shift in AI spending, it remains to be seen how DeepSeek’s performance will affect the broader technology sector and the potential repercussions on Nvidia’s stock and financials.
Nevertheless, Nvidia will likely continue to benefit from its wide range of products, which target future growth areas such as quantum computing.
For instance, the firm’s CUDA-Q platform allows developers to simulate quantum algorithms on GPUs before deploying them to physical quantum processing units. A segment of the market projects that this venture could help push the company toward a $10 trillion market capitalization.
Featured image via Shutterstock
