Nvidia’s shares tanked 17 per cent on Monday amid concerns about competition from Chinese artificial intelligence start-up DeepSeek, but analysts dismissed fears of lasting damage, calling the drop a “healthy market correction”.
The move led to more than $590 billion being wiped off the US chip maker's market value, the biggest one-day value loss for any company in history, and more than double the $279 billion market cap lost by Nvidia on September 3.
Nvidia's stock closed at $118.58 a share on Monday, giving the company a market capitalisation of $2.90 trillion. The company's market cap loss stood at more than $475 billion at market close.
While acknowledging the efficiency of Chinese start-ups, analysts maintain confidence in Nvidia’s innovation and leadership in semiconductors, saying the market reaction reflects short-term concerns rather than a fundamental shift in the company’s prospects.
Opportunity to buy Nvidia at lower valuation
Nvidia's lower share price presents a chance to buy the stock at a lower valuation, according to analysts. Naeem Aslam, chief investment officer at Zaye Capital Markets, said concerns over DeepSeek’s capabilities may be overblown.
“We believe this is an early Christmas opportunity. We remain confident in the company [Nvidia] and view the current market adjustment as a healthy correction … Nvidia’s inflated valuations have made this adjustment inevitable,” Mr Aslam said.
“We believe that most investors are currently concerned about DeepSeek's hardware chip numbers without sufficient reason, as these concerns may not be entirely reliable.”
Citigroup analyst Atif Malik says that DeepSeek's launch is unlikely to undermine Nvidia's role in AI investment.
“While DeepSeek’s achievement could be groundbreaking, we question the notion that its feats were done without the use of advanced GPUs [graphic processing units] to fine-tune,” Mr Malik said.
He added that DeepSeek’s offerings are not expected to convince the US-based hyperscalers, such as Google, Meta and Microsoft, to shift away from buying advanced GPUs from Nvidia.
Mr Malik reiterated his $175 price target and buy rating on Nvidia stock in a latest research note.
Is it a wake-up call for US?
Neil Chilson, head of AI policy at Utah-based Abundance Institute, said the DeepSeek R1 model is a “wake-up call for anyone who thought secrecy and closed architectures were the key to continued US leadership in AI”.
“Open-source AI is key to widespread deployment of this powerful technology … yet regulators and legislators at the federal, state and even local levels are developing frameworks that would cripple US open-source development,” Mr Chilson said.
Based in the eastern Chinese city of Hangzhou, DeepSeek was founded in May 2023, about four months after OpenAI's ChatGPT exploded into the scene. It remained relatively quiet and unknown – until last week, when it launched its DeepSeek R1 large language model.
Dean Ball, research fellow at the Mercatus Centre at George Mason University, said DeepSeek's recent achievements with their V3 and R1 models demonstrate the rapid pace of global AI development, particularly in open-source AI. While their work is impressive, markets should avoid both “alarmist reactions and complacency”.
“It should be a reminder that competition will be fierce, progress will be rapid, and the AI ecosystem will feel turbulence for the foreseeable future,” Mr Ball said.
“Times like these demand simple, clear, and unified regulatory frameworks … unfortunately, the US is rushing headlong into a 50-state patchwork of complex, vague and varied laws … if we continue down this path, the hyperbolic rhetoric about the US lead in AI is evaporating may not be so hyperbolic.”
Rekindled interest in AI
While there have been some exaggerations about DeepSeek’s actual capabilities, its advancements have reignited competition in the AI field, said Yashin Manraj, chief executive of US-based Pvotal Technologies.
Nvidia’s market correction is an “expected swing based on being overinflated rather than any fundamental worry” from DeepSeek.
“While DeepSeek may appear to be more efficient and cheaper than other models, there is no sign that this will decrease interest in advanced GPUs or AI capacity,” Mr Manraj said. “While influencers are capitalising on the news to weaken the western hegemony on AI, most of the noise seems to overlook the fact that DeepSeek has been extensively trained on existing work of OpenAI, Meta and other large tech corporations that relied mostly on Nvidia equipment.”
Focus on emerging technology
Industry analysts suggested taking market correction as an opportunity to diversify investment portfolio rather than a signal of long-term trouble.
For investors, this is both a warning and an opportunity, said Nigel Green, chief executive of global financial advisory firm deVere Group, adding that DeepSeek is going to challenge Silicon Valley’s leadership, disrupting the global tech landscape and reshaping the direction of the AI arms race.
“It’s time to rethink traditional tech allocations and seek out new areas of growth,” he said. “AI will be the defining technology of our time, and the race to dominate it will shape global markets for decades to come. Investors need to take a global perspective, focusing on emerging technologies, cyber security and markets that are driving innovation.”
The rapid rise of DeepSeek has not been without challenges.
On Monday, DeepSeek temporarily limited the registration of new users because of large-scale cyber attacks on its services. DeepSeek, whose chatbot passed Microsoft-backed OpenAI's ChatGPT as Apple's top downloaded app on Monday, attributed “large-scale malicious attacks” for disruptions and its failure to accept new users.
Nvidia’s slide sparks global sell-off
Nvidia’s drop contributed to a broader sell-off in AI-related stocks and the US market. Chip makers Broadcom and Advanced Micro Devices dropped 16 per cent and 6.5 per cent, respectively, on Monday, while Micron and Arm Holdings saw declines of 12 per cent and 10 per cent. Dutch semiconductor firms ASML and ASM International also faced sharp drops, losing 7 per cent and 12.15 per cent, respectively.
However, Apple has expedited its in-house AI development efforts in the past few months and jumped more than 3.2 per cent to trade at $230.01 at market close.
