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By Hugh Cameron
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The valuation of Artificial Intelligence chipmaking firm Nvidia has plummeted after the debut of Chinese AI chatbot DeepSeek caused panic and mass sell-offs in the wider tech sector.
In what proved to be the largest single-day loss in stock market history, Nvidia shed $592 billion from its market cap on Monday, which stood at £2.9 trillion at the close of trading.
NVIDIA had fallen from the top position to third place in the global company rankings, with Apple holding the top spot, followed by Microsoft.
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Shares in Nvidia, meanwhile, sank 16.0 percent on Monday to $118.58 by the time the bell rang, having closed at $142.62 on Friday.
Why It Matters
Nvidia dominates the market for graphics processing units (GPUs), employed in everything from gaming and video rendering to, more critically, high-performance computing and machine learning. However, DeepSeek doesn't rely on the costly GPUs made by Nvidia, allowing manufacturers to incorporate AI features into phones and computers using more affordable alternatives.
The firm's control over this sphere—its GPUs powering more than 90 percent of cloud-based AI workloads, according to Investing.com—meant Nvidia was positioned to be at the forefront of the AI revolution. This propelled Nvidia's market cap from around $110 billion in January 2020 to its current, multitrillion valuation.
What To Know
The debut of China's DeepSeek triggered a sell-off in semiconductor stocks and the broader tech market, hitting Nvidia hardest.
DeepSeek's latest AI model, released last week, is currently the top-rated free application on the App Store, and many believe the model will pose a significant challenge to OpenAI's ChatGPT and Meta AI.
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The new chatbot, reportedly developed for a fraction of the cost of its competitors and despite mounting restrictions on the export of U.S.-made chips to China, has raised questions about American-Chinese competition in the AI sphere, while also sparking routs for several major tech stocks.
At market close, Microsoft was down 2.1 percent, and Google's parent company Alphabet had lost 4.0 percent, though Nvidia remained the primary victim of the sell-off frenzy.
The recent election of Donald Trump, who has pledged to make the U.S. a global leader in AI, and taken steps to bring this to fruition, had further solidified Nvidia's status as one of the this century's most consequential companies.
What People Are Saying
Morgan Brown, company growth specialist, via X: "For Nvidia, this is scary. Their entire business model is built on selling super expensive GPUs with 90% margins. If everyone can suddenly do AI with regular gaming GPUs … well, you see the problem."
Silicon Valley venture capitalist Marc Andreessen said on X: "DeepSeek R1 is AI's Sputnik moment."
A spokesperson for Nvidia told Newsweek: "DeepSeek is an excellent AI advancement and a perfect example of Test Time Scaling. DeepSeek's work illustrates how new models can be created using that technique, leveraging widely-available models and compute that is fully export control compliant. Inference requires significant numbers of NVIDIA GPUs and high-performance networking. We now have three scaling laws: pre-training and post-training, which continue, and new test-time scaling."
Vey-Sern Ling, managing director at wealth management firm Union Bancaire Privée, told Bloomberg: "DeepSeek shows that it is possible to develop powerful AI models that cost less. It can potentially derail the investment case for the entire AI supply chain, which is driven by high spending from a small handful of hyperscalers."
What Happens Next?
The successful rollout of DeepSeek's chatbot, despite some issues already having come to light, demonstrates that American mastery over AI's future is far from certain.
Nvidia, meanwhile, may manage to recover some of its valuation over time, as panic fades and confidence reemerges in the company's solid standing in the GPU market.
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Update 01/28/25 8:03 a.m. ET: This article was updated with comment from Nvidia.
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