Nvidia’s Dramatic Market Plunge

Chipmaker Nvidia experienced its largest single-day share price decline over concerns surrounding a new artificial intelligence model launched by Chinese start-up DeepSeek. This development triggered a widespread sell-off in tech stocks from New York to Tokyo.

Nvidia’s Fall:
Nvidia, whose stock had surged following OpenAI’s release of ChatGPT in November 2022, faced a sudden downturn. Its shares closed at a four-month low of $118.42, wiping out nearly $600 billion in market value. This historic loss had a ripple effect, pulling the Nasdaq index down by over 3%. On Tuesday, Tokyo stocks opened lower as the sell-off continued, though Hong Kong’s Hang Seng index saw gains with Chinese tech firms like Tencent, Alibaba, and Baidu performing well.

Market Triggers:
Three key factors contributed to the market turmoil:

1. DeepSeek’s AI Breakthrough: The Chinese start-up demonstrated a foundational AI model with performance comparable to ChatGPT and Meta’s Llama, achieved at a fraction of the cost using fewer chips. This raised concerns about diminishing demand for high-end hardware essential for AI training, which Nvidia had heavily relied on.
2. China’s Rapid AI Advancement: China’s unexpected AI progress highlighted its narrowing gap with the U.S., despite American efforts to curb Chinese development through export restrictions on advanced chips and manufacturing technology.
3. Economic Implications of Cheaper AI Models: The emergence of cost-efficient Chinese AI models, including Alibaba’s QwQ, challenged the prevailing notion that AI development required substantial investment. DeepSeek’s success in training its model with only 2,000 second-rate Nvidia chips, compared to the 15,000 first-class chips used by Meta, underscored this shift.

DeepSeek’s Journey:
Founded in 2021 by hedge fund manager Liang Wenfeng, DeepSeek initially leveraged AI for stock market analysis before evolving into a full-fledged AI venture.

Political Reactions:
Former U.S. President Donald Trump described DeepSeek’s advancement as a “wake-up call” for American industries, urging a renewed focus on maintaining AI leadership.

Nvidia’s Response:
The chipmaker clarified that DeepSeek’s work adhered to U.S. export regulations and highlighted sustained demand for AI inference solutions.

Global Implications, Including India:
DeepSeek’s success has implications for emerging economies like India, as it lowers the barriers to developing foundational AI models. This development reignited debates in India about whether to build models from scratch or leverage existing open-source models.

Tech leaders remain divided on the issue. While Infosys co-founder Nandan Nilekani suggested India should avoid developing foundational models, Perplexity AI founder Aravind Srinivas emphasized the importance of building indigenous models to achieve global competitiveness.