Nvidia Faces Historic Loss Amid DeepSeek’s Disruptive AI Breakthrough

 Nvidia Faces Historic Loss Amid DeepSeek’s Disruptive AI Breakthrough

Nvidia Corp.’s sharp decline, driven by investor worries over Chinese AI startup DeepSeek, wiped out a historic amount of market value from the world’s largest chipmaker.

Nvidia’s stock plunged by as much as 13% shortly after Monday's market opening, erasing approximately $465 billion from its market capitalization. This surpasses its previous record loss in September, when a 9% drop reduced its valuation by about $279 billion.

Nvidia's decline sent shockwaves across the market due to its significant weight in major indexes. Historically, the company's previous losses have accounted for seven of the top ten largest one-day market value drops in the S&P 500 Index, according to Bloomberg data. On Monday, the S&P 500 dipped as much as 2.3%, while the Nasdaq 100 fell by up to 3.6%.

The semiconductor giant's slump has triggered a broader tech selloff after DeepSeek's cost-effective AI solutions raised concerns about excessive investments by major U.S. companies in artificial intelligence. The Chinese startup's technology appears to rival Western chatbots in performance while being significantly cheaper, reigniting fears of overvaluation in the sector.

DeepSeek's latest AI model, launched last week, is widely regarded as a strong competitor to those developed by OpenAI and Meta Platforms Inc. The open-source product, created by quant-fund chief Liang Wenfeng, has quickly climbed to the top of Apple Inc.'s App Store rankings.

Analysts at Jefferies noted that the model has raised immediate concerns about disrupting the current AI business model, which relies heavily on high-end chips, extensive computing power, and significant energy consumption.

Nvidia, a primary beneficiary of the surge in AI-related spending due to its advanced semiconductor designs, has seen substantial growth from this trend. However, while heavy investment in AI appears set to continue, investors may become more cautious about backing companies that prioritize spending without demonstrating clear returns on their investments.

On Friday, Meta announced plans to increase capital expenditures on AI projects by nearly 50%, reaching up to $65 billion this year, which pushed its shares to an all-time high. This follows the announcement of a $100 billion joint venture, "Stargate," by OpenAI, SoftBank Group Corp., and Oracle Corp., aimed at expanding data centers and AI infrastructure across the United States.

In an effort to curb China's advancements in AI, the US has implemented export bans on advanced semiconductor technologies to the country and restricted the sale of Nvidia's high-end AI chips to other nations. Similarly, ASML has been prohibited from selling its cutting-edge extreme ultraviolet lithography machines to China due to US-led restrictions. Additionally, under pressure from the Biden administration, the Dutch government imposed limitations last year on the export of immersion deep ultraviolet lithography systems to China.

However, DeepSeek's advancements indicate that Chinese AI engineers may have developed methods to bypass the export restrictions, emphasizing increased efficiency while utilizing limited resources.