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A groundbreaking claim by Chinese artificial intelligence company DeepSeek has triggered a massive $600 billion decline in Nvidia’s market value, marking the largest single-day drop in the company’s history. The announcement has sent shockwaves through Wall Street, challenging the prevailing narrative of sustained AI spending and US technological supremacy.
DeepSeek’s revelation of developing a highly capable AI model for merely $5.6 million has rattled investors’ confidence in Nvidia’s dominant market position. The Chinese firm achieved this feat using just 2,048 Nvidia chips, demonstrating remarkable efficiency whilst avoiding US export control restrictions.
Despite the market turbulence, several Silicon Valley veterans, including former Intel CEO Pat Gelsinger, view the sell-off as an overreaction. Gelsinger, who purchased Nvidia shares during Monday’s decline, argues that reducing AI costs will ultimately expand the market, benefitting the entire sector.
The timing of DeepSeek’s announcement has proved particularly significant, coming just before major US tech companies’ earnings reports. The Chinese company’s success in developing their R1 model without relying on Nvidia’s Cuda software platform has raised questions about the American chipmaker’s future market dominance.
Short sellers capitalised on the market reaction, securing profits of $6.75 billion according to data group S3 Partners. However, some analysts contest DeepSeek’s claimed development costs, with chip consultancy SemiAnalysis estimating the company’s total GPU investment exceeds $500 million.
Nvidia maintains an optimistic stance, suggesting DeepSeek’s innovations could actually drive increased demand for their chips, particularly in the inference processing sector. Jensen Huang, Nvidia’s chief executive, has previously predicted that inference demand “is about to go up by a billion times,” potentially positioning the company to benefit from rather than suffer from these technological advances.
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