Last month, Jensen Huang was probably wishing he’d never left Denny’s.
Huang, CEO of Nvidia (NVDA) , once worked as a dishwasher, busboy and waiter at the diner chain. He famously launched the AI-chip mastodon in 1993 from a Denny’s (DENN) location in San Jose, Calif.
The company now is the second most valuable in the world, smack dab behind Apple. (AAPL)
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But a few weeks back Nvidia got knocked into the sideboards by Chinese AI chatbot DeepSeek, which took a deep bite out of the company’s market cap and his wallet. DeepSeek claims that it was developed for a fraction of the cost of similar models from U.S. competitors such as OpenAI’s ChatGPT.
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The new chatbot looked as if it were going to disrupt the dominance of U.S. AI companies, and President Donald Trump called the new kid in town a “wake-up call” for America’s tech sector.
Nvidia’s stock dropped 17%, posting the biggest one-day market-cap decline in history, and Huang reportedly lost $20.8 billion of his own money. Broadcom (AVGO) , Micron (MU) and Taiwan Semiconductor (TSM) also shed value.
But then the DeepSeek story started to waver.
Nvidia CEO Jensen Huang took a hit following the debut of DeepSeek.
PATRICK T. FALLON/Getty Images
Group calls DeepSeek a ‘disinformation machine’
Security researchers warned that DeepSeek’s website had computer code that could send some user login information to a Chinese state-owned telecom company that has been barred from operating in the U.S.
In addition, independent researcher SemiAnalysis disputed claims that DeepSeek V3 incurs a training cost of roughly $6 million. It pegged the total server capital expenditure at $1.3 billion.
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And NewsGuard branded the chatbot phenom a “disinformation machine” that failed to provide accurate information 83% of the time and frequently inserted Chinese government messaging into unrelated responses.
“NewsGuard’s analysis of how DeepSeek responds to prompts related to disinformation from China, Russia and Iran found that the chatbot repeated false claims even in response to neutral, straightforward queries,” the group said.
Louis Navellier, chairman and founder of Navellier & Associates, said during a recent podcast that DeepSeek was announced during the NFC-AFC football playoffs “and that news took a bunch of stocks down premarket.”
“I guarantee your average trader is watching those football games,” he said. “It looks like it was done to just hit the market because the app’s not working, to be honest with you. It’s crashing the cloud constantly, so whatever narratives the short sellers are using are now over.”
Take China reports ‘with grain of salt’: Analyst
Jason Bodner, co-founder of institutional-trading researcher MAPsignals.com, who appeared on the podcast, noted that Liang Wenfeng, DeepSeek’s founder and CEO, is also co-founder of the quantitative hedge fund High-Flyer.
“Everything coming out of China we have to take with a grain of salt,” he said. “They have $8 billion in assets under management, so when he achieved his success from there, he grabbed a bunch of engineers and he said, ‘I want to build some crackerjack AI.’ Let’s not forget that anything coming out of China has to be controlled, metered, blessed and approved by the state media.”
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Bodner cited the challenges regarding DeepSeek’s costs, adding that it’s illegal to short stocks in China and “it’s possible that this is a China state organized PR blitz in an illiquid time in a championship game.”
Short-selling is an investment strategy that involves betting on declines in securities prices.
“Come in, short the market, cover it and move on with your day,” he said. “I think, looking back now, it’s just a bump in the road and to have such massive market-cap adjustments for Nvidia and some of the other AI stocks. It looks to me like it was a raid.”
Evercore: DeepSeek worries misplaced
Nvidia is scheduled to report earnings on Feb. 26 and whilethe Santa Clara, Calif., group’s shares are up nearly 87% from a year ago, they’ve broken even this so far year.
Investment firms have been showing their support for Nvidia. These include Evercore ISI, which added the stock its Tactical Outperform list and maintained an outperform rating and $190 price target on the shares.
Analyst Mark Lipacis said Nvidia shares have underperformed recently due to investors’ concerns about DeepSeek lowering overall AI demand and shifting Al-computing cycles away from Nvidia’s versatile GPUs and toward highly specialized application specific integrated circuits, known as ASICs.
Related: Analyst reboots Nvidia stock forecast after tumble
After conducting a survey, Lipacis said that worries about DeepSeek lowering total demand are misplaced and that its lower cost is “evolutionary rather than revolutionary.”
And while ASICs will have a role, external workloads, such as at cloud-services providers Amazon Web Services (AMZN) , Alphabet’s Google Cloud (GOOGL) and Microsoft Azure (MSFT) , and on premises at companies will likely remain dominated by Nvidia, the analyst said. In the long term, he said, “internal workloads likely would split 50-50 to 70-30 in favor of Nvidia.”
Nvidia growth opportunities huge: Argus
Argus analyst Jim Kelleher affirmed a buy rating and $175 price target on Nvidia. The stock has been more “wobbly” since investors became broadly aware of DeepSeek and its claim to less costly large language models.
But Nvidia has significant competitive advantage in that its first-mover status enabled it to become a supplier to all the major AI and cloud-service providers, Kelleher said.
The company’s multigeneration lead in GPU technology and its other software and hardware products provide a comprehensive solution unmatched by any competitor, the analyst said.
Beyond data centers, Nvidia also has huge growth opportunities in gaming, professional visualization, and automotive, he said.
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