China’s DeepSeek startup shook up AI stocks on Monday as Wall Street focused on big investments in AI infrastructure and the demand for Nvidia (NVDA) chips. DeepSeek’s progress raised questions about the computing power needed for AI development, which is a key factor for AI stocks. In December, DeepSeek launched a large language model (LLM) that performed similarly to OpenAI and other AI systems, even with U.S. restrictions on chip exports.
Image Credit: NvidiaOn January 20, DeepSeek introduced another LLM, claiming it was trained at a fraction of the cost of systems from OpenAI, Alphabet’s Google, Meta Platforms, and other U.S. companies.
DeepSeek Challenges Nvidia in AI
Nvidia’s stock dropped over 11% to $126.50 in early trading today, with other AI stocks also falling on the Robinhood platform. While OpenAI and Google have their own AI models, DeepSeek has been using widely available “open source” technology. There’s been some confusion about which Nvidia chips DeepSeek is using to build its AI models.
Some reports say they’re using less powerful H800 chips, while others suggest DeepSeek’s parent company, High-Flyer, has found a way to get more advanced H100 Nvidia chips despite U.S. export restrictions. DeepSeek is gaining huge popularity, becoming the first app to top the free download charts in both China and the U.S. on Apple’s platform, beating ChatGPT. The sudden surge in users even caused temporary server problems for DeepSeek.
DeepSeek Disrupts the AI Market
“DeepSeek may not have as much computing power as U.S. tech giants, but it’s somehow created a model that looks highly competitive,” said Raymond James analyst Srini Pajjuri in a Sunday report. “The big question is, how will DeepSeek’s rise affect the growth of computing power and the demand for hardware and semiconductors?”
Startups like OpenAI and Anthropic have been competing with Google, Meta, and others to develop large, multimodal, and small language models. DeepSeek is said to have spent just $5.6 million over two months to develop its latest AI model. At the same time, Yardeni pointed out that DeepSeek’s success could impact U.S. earnings reports, especially with the massive spending increases from Google, Meta, Microsoft, and others. Microsoft is the largest investor in OpenAI.
Nvidia Stock Update
Nvidia’s stock took a hit today, closing at $142.62, down 3.12% from its opening price. This follows a week of ups and downs, with the stock swinging between $148.97 and $141.88. While Nvidia has seen strong growth over the past year, peaking at $153.13, the rise of competitors like DeepSeek has raised concerns about the company’s future profits and market leadership. As a result, investors have become more uncertain, leading to a drop in stock value.
