Nvidia (NVDA) just suffered the single largest loss of value by a stock in market history. Some $590 billion in market cap was obliterated in one day, or more than twice the amount suffered by the previous record holder, which also happened to be Nvidia.
The AI chipmaker wiped away over one-fifth of its value in the last two trading days and all of the gains it made since last October. NVDA stock went from the most-valuable company on the market, to third-largest. It was not a good day for Nvidia investors. Or was it?
Doing More With Less
The reason for the Wall Street bloodbath that vaporized $1 trillion in valuation from the market was the revelation Chinese AI lab DeepSeek had created a superior large language model that was faster, more efficient, and free.
The open-source R1 model outperformed existing models across numerous benchmarks all the while using underpowered chips. The H800 chips DeepSeek used were designed by Nvidia to get around the ban on technology exports to China that applied to the high-powered H100 chips hyperscalers and data centers use.
The $5.5 million DeepSeek spent was embarrassingly cheap compared to the more than $100 million OpenAI spent on training ChatGPT. It was also significantly more efficient and trounced the LLM, as well as those made by Anthropic, Alibaba (BABA), and Meta Platforms (META) leading Llama 3.1.
But it also called into question whether Nvidia would be able to continue selling its premium-priced advanced AI accelerators when better models could be built using cheap, inferior, and more abundant chips. Also, why would users pay a $200 per month subscription to OpenAI for Chat GPT when they could get a better product for free?
Nvidia Shrugs It Off
Nvidia did not seem phased by the development, despite its stock cratering. In fact, it said, “DeepSeek’s work shows how new models can be created, leveraging widely-available models and compute that is fully export control compliant.”
This is actually a net positive for Nvidia as it opens up the opportunity as demand for DeepSeek or models developed as a result of it expands demand for its chips. Also, hyperscalers such as Alphabet (GOOG)(GOOGL), Amazon (AMZN), and Microsoft (MSFT) will continue to buy Nvidia’s most advanced, top of the line chips.
There is also the possibility few companies will actually use DeepSeek. Because the AI lab collects and stores in China mountains of personal, financial, and operational data users input into the model, it will undoubtedly be seen to be a significant national security risk. It would not be surprising to see DeepSeek’s model banned, much the way TikTok was going to be.
New, domestic AI models will be created based on the open-source data DeepSeek used and there will be continued demand for Nvidia’s chips.
Key Takeaway
Although NVDA stock was wrecked by shockwaves sent out by DeepSeek’s achievement, this is likely a temporary loss. No doubt it will take some time for the dust to settle before the chipmaker resumes its growth trajectory, albeit at a slightly gentler slope higher, but this correction should be seen as a gift to long-term investors looking for a better entry point into the stock.
— Rich Duprey
Fed's Stealthy Move Could Crash U.S. Market [sponsor]A new, secretive move being carried out by the Fed that has nothing to do with lowering or raising interest rates... could soon have an enormous impact on your wealth. According to Dan Ferris, the banking expert who once predicted the collapse of Lehman Brothers, "Millions are about to be blindsided." More here.
Source: Money Morning