DeepSeek forced Nvidia stock plunge sparks market panic
28 Jan 2025
Nvidia’s rocket ride to the top of artificial intelligence (AI) mountain ended abruptly this week, with the company’s shares suffering a staggering 17% drop and nearly $600bn wiped from its market value in a single day. The trigger? China’s DeepSeek R1, a low-cost, high-performing AI model that has shaken confidence in the sustainability of US AI spending and the GPU giant’s house of cards. The fallout from Nvidia’s collapse rippled across global markets, sparking a rout in technology stocks, particularly those tied to AI.
In Japan, Nvidia supplier Advantest saw its shares tumble by as much as 10%, while Tokyo Electron and Renesas Electronics fell between 4% and 6%.
SoftBank Group, which owns chip designer Arm Holdings, also suffered, with its shares dropping 5.5%.
DeepSeek R1, developed by Chinese quant trading firm High-Flyer, has emerged as a disruptive force in the AI landscape.
The open-source model not only rivals the performance of industry heavyweights like OpenAI’s ChatGPT but does so at a fraction of the cost.
High-Flyer claims that the R1 model runs on older hardware and was developed for less than $10m – a stark contrast to the billions of dollars poured into AI infrastructure by US tech giants.
Questions are now being raised about whether the massive capital expenditure on advanced AI chips and data centres is justified.
Nvidia, the primary beneficiary of this AI-driven spending spree, faces an existential challenge as investors question the viability of its dominance in the sector.
Red alert for the quantum age
DeepSeek’s debut has been hailed as a modern-day "Sputnik moment," reminiscent of the panic that followed the Soviet Union’s launch of the first artificial satellite in 1957.
Just as Sputnik spurred the US to accelerate its space programme, DeepSeek’s emergence is expected to push the US to double down on other advanced technologies, such as quantum computing.
Quantum computing, long considered the next frontier in technological innovation, could offer a way for the US to regain its edge.
By enabling unparalleled computational power, quantum technologies may become a cornerstone in the next wave of AI development, ensuring the US remains competitive against increasingly sophisticated Chinese advancements.
Silence of the Sam
The seismic impact of DeepSeek has also left OpenAI CEO Sam Altman conspicuously silent.
While Altman cryptically tweeted, "A revolution can neither be made nor stopped," the lack of a concrete response from OpenAI has been met with criticism.
Some observers have interpreted the silence as an admission of the disruptive potential of DeepSeek, while others see it as an opportunity for OpenAI to innovate further.
Meanwhile, OpenAI has introduced its Operator tool, allowing AI to perform tasks like filling out forms and navigating websites.
While innovative, such developments may pale in comparison to the paradigm shift triggered by DeepSeek.
Tech is interesting again
DeepSeek’s R1 model has seemingly ended the era of costly, GPU-intensive AI that may now be giving way to a new phase of innovation driven by efficiency and accessibility.
For Nvidia and its peers, the challenge is clear: adapt to a rapidly changing landscape or risk being left behind.
For consumers this may bring balance and sense to the device marketing.
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