 "DeepSeek's claims of having developed an AI for a fraction of the cost it has taken for Western developers had led to chipmaker Nvidia's stock registering losses. Reuters")
Nvidia’s meteoric rise in recent times came to a sudden halt earlier this week– on Monday (January 27), as its stock plunged nearly 17 per cent, wiping out $595 billion in market value.
The loss was roughly the combined worth of Starbucks, PepsiCo, McDonald’s, and Target, Times of India reported.
The steep drop followed a big development from a Chinese startup, DeepSeek. It announced it had created a large-language model capable of matching ChatGPT and other US rivals while using significantly less computing power.
The news triggered investor concerns over whether demand for Nvidia’s high-performance chips– until then considered integral to artificial intelligence (AI) development– would remain as strong as previously expected.
The AI boom that propelled Nvidia
For years, Nvidia was known primarily for its role in gaming and cryptocurrency. But its dominance in AI computing turned it into a Wall Street giant, with its stock more than tripling in 2023 and more than doubling again in 2024.
Investors and analysts hailed CEO Jensen Huang as the “Godfather of AI” as Nvidia’s market capitalisation surged past $3 trillion, briefly making it the most valuable company on Wall Street, ahead of Apple and Microsoft.
The company’s ascent was driven by surging demand for its specialised graphics processing units (GPUs), which outperform traditional central processing units (CPUs) in AI applications.
Tech giants flocked to buy Nvidia chips as they expanded their AI capabilities, using them for self-driving cars, content generation, and enterprise automation.
Nvidia’s financial performance reflected this rapid growth. Quarterly revenue soared from $6.05 billion in early 2023 to $13.51 billion just six months later. By the three months ending October 2024, the company reported revenue of $35.08 billion. Nvidia’s stock single-handedly accounted for more than a fifth of the S&P 500’s total return in 2024, outpacing every other company, Time of India reported.
The shock on Wall Street
Monday’s selloff marked the worst single-day decline for Nvidia in years. DeepSeek’s announcement raised fears that AI computing costs could drop, reducing the need for companies to spend as heavily on Nvidia’s chips.
That uncertainty weighed on the broader AI sector, with suppliers and data centre power companies also seeing their stocks decline.
Some investors viewed the plunge as a buying opportunity. While Nvidia’s dominance in AI remains strong, analysts say competition is intensifying.
Despite the setback, many on Wall Street believe the AI revolution is far from over. If DeepSeek’s advancements make AI more accessible and affordable, it could drive new innovations across the industry– potentially creating more opportunities for Nvidia in the long run.