Nvidia faced a catastrophic 16.9% drop in its stock price today, its worst day on Wall Street since March 2020. The sell-off was caused by Chinese AI company DeepSeek, who shattered confidence in the competitiveness of US tech companies.
Nvidia’s shares plummeted to levels not seen since October, dragging the broader tech market down with it. The crash hit other major players hard too. Micron and Arm Holdings dropped over 11% and 10%, respectively, while Advanced Micro Devices (AMD) and Broadcom took severe hits of 6% and 17%.
Power infrastructure companies tied to AI, like Constellation Energy and Vistra, faced staggering losses of 20% and 28%, respectively. European chip giants ASML and ASM International saw sharp declines during trading hours, while in Asia, Japanese chipmakers like Advantest and Tokyo Electron also reported massive losses.
In late December, DeepSeek launched a free, open-source large language model and claimed it built the model in just two months on a $6 million budget, a figure that dwarfs the multi-billion-dollar investments typically required for similar projects in the West.
Also, the company rolled out a reasoning model last week that third-party tests say outperformed OpenAI’s most recent offerings.
Nvidia praises DeepSeek
Nvidia addressed the situation early on in the day. A CNBC report claims the company said, “DeepSeek is an excellent AI advancement and a perfect example of Test Time Scaling. Their work shows how new models can be created using widely available models and export-compliant compute. Inference still requires a significant number of NVIDIA GPUs and high-performance networking.”
They added that DeepSeek’s models prove new scaling laws for AI—pre-training, post-training, and now test-time scaling.
Meanwhile, Marc Andreessen, co-founder of Andreessen Horowitz and an outspoken supporter of President Donald Trump, called DeepSeek’s breakthrough “one of the most amazing and impressive advancements I’ve ever seen” in a social media post.
But while investors panicked over Monday’s sell-off, Wall Street analysts are raising broader concerns about US leadership in AI. Citi analysts said DeepSeek’s success shows how the cost of computing has become a major barrier in the industry.
They added that US companies still dominate the high-end AI chip market, but the emergence of cost-efficient alternatives like DeepSeek’s models could challenge that dominance.
The $500 billion Stargate AI project was announced last week, and Citi analysts believe the project demonstrates how the need for top-tier GPUs, like those manufactured by Nvidia, will persist regardless of any competition.
Meanwhile, Bernstein analysts questioned DeepSeek’s claims that it developed its models for under $6 million. They suggested that figure might not include prior research and experiments. In a research note, the analysts called DeepSeek’s tools “fantastic” but warned against labeling them as miracles. They described fears of a collapse in the AI infrastructure market as “overblown.”
JPMorgan Chase added to the debate. “Investors are concerned that rather than impede China’s progress in AI, US restrictions have pushed Chinese companies to innovate faster and more efficiently,” they wrote.
The immediate impact of DeepSeek’s announcement is clear: a massive reevaluation of the AI sector’s biggest players. Nvidia, which trades at a premium 32 times its next 12 months’ earnings, saw its valuation come under scrutiny as its shares plunged.
