Nvidia (NVDA) stock plunged 16% Monday afternoon after Chinese artificial intelligence startup DeepSeek’s latest model raised questions about American competitiveness in the AI space.
DeepSeek in December launched a free, open source large language model (LLM), which it claimed it had developed in just two months for less than $6 million. And last week, the company said it launched a model that rivals OpenAI’s ChatGPT and Meta’s (META) Llama 3.1 — and which rose to the top of Apple’s (AAPL) App Store over the weekend.
Most notably, DeepSeek built the model using lower capability chips from Nvidia, which could put pressure on the semiconductor darling if other firms move away from its premium offerings.
Analysts at Wedbush said in a research note Monday that “tech stocks are under massive pressure led by Nvidia as the Street will view DeepSeek as a major perceived threat to U.S. tech dominance and owning this AI Revolution.”
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Other major chip stocks also sank, including ASML (ASML), Broadcom (AVGO), Super Micro Computer (SMCI), Micron (MU), and Taiwan Semiconductor Manufacturing Co. (TSM).
“U.S. tech companies are trading at premium valuations, with major AI players like Nvidia, Microsoft (MSFT), and Alphabet (GOOGL) commanding forward [price-to-earnings] multiples far above historical averages,” said Charu Chanana, chief investment strategist at investment platform Saxo, in a statement. “With these stocks priced for perfection, even minor disruptions, such as DeepSeek proving advanced AI can be built without top-tier chips, could weigh heavily on share prices.”
With the end goal of AI being artificial general intelligence (AGI) — and with U.S. companies well on their way to achieve it within the coming years — Wedbush analysts believe Monday’s investor jitters may be overblown.
“While the model is impressive and it will have a ripple impact,” they said, “the reality is that Mag 7 and US tech is focused on the AGI endgame with all the infrastructure and ecosystem that China and especially DeepSeek cannot come close to in our view.”