Nvidia shares tumbled in early Monday trading following the launch of an AI-powered chatbot in China that has triggered a massive selloff in U.S. tech stocks and challenged the investment narrative tied to the world’s hottest technology.
Nvidia (NVDA) shares are on pace to shed nearly $400 billion dollars in market value, based on premarket declines, following the weekend revelation that DeepSeek, a China-backed startup, overtook OpenAI’s ChatGPT as the world’s most-popular AI tool on the Apple (AAPL) App Store.
DeepSeek claims it was able to create and train a large-language AI model (LLM), using lower-end H800 Nvidia chips and open-sourced modelling, for less than $6 billion. It also claims that its v3 LLM outperforms OpenAI, which cost around $540 million.
Llama, the open-sourced AI model developed by Meta Platforms (META) , reportedly cost around $500 million.
If true, the DeepSeek revelation could test investor patience for the both the capital spending plans of the biggest hyperscalers, such as Microsoft (MSFT) , Amazon (AMZN) and Google parent Alphabet (GOOGL) and Facebook parent Meta, which are forecast to lay out as much as $300 billion this year alone.
That could, in turn, affect the near-term profit and revenue forecasts for Nvidia, whose chips are the biggest component of the training and development of hyperscaler projects.
Microsoft CEO Satya Nadella invoked a century-old economic theory to assess the potential impact of China’s DeepSeek AI chatbot on the world’s newest technology.
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Nvidia’s profit margins are currently holding in the low-to-mid 70% range, and its high-end Blackwell GPUs are the AI sector benchmark for LLM training and inferencing.
DeepSeek threat to Nvidia sales?
The group is expected to generate around $197.3 billion in revenue in the coming fiscal year, which ends in January of 2026, with net income of around $102 billion.
Citigroup analyst Atif Malik, however, isn’t ready to concede that the DeepSeek launch represents a major threat to Nvidia’s prospects, or its place at the epicenter of the AI investment thesis.
“While DeepSeek’s achievement could be groundbreaking, we question the notion that its feats were done without the use of advanced GPUs to fine tune it and/or build the underlying LLMs the final model is based on through the Distillation technique.” he said.
Related: Analyst reworks Nvidia stock price target on Blackwell demand forecast
That refers to a condition in which as smaller “student” AI model is trained to mimic a larger one at a fraction of the cost and with more speed and efficiency.
Malik, who reiterated his $175 price target and ‘buy’ rating on Nvidia stock in a note published Monday, said the DeepSeek advances won’t mean U.S.-based hyperscalers will abandon plans to purchase better-performing GPUs from Nvidia.
He also argues that reports suggesting DeepSeek had access to the more-advanced Nvidia chips, as well as the fact that the sale of H800s is now banned in China as a result of U.S. export restrictions, could lead to a tighter regulatory environment.
Jevons Paradox in play
“While the dominance of the US companies on the most advanced AI models could be potentially challenged, we estimate that in an inevitably more restrictive environment, US’ access to more advanced chips is an advantage,” Malik and his team wrote.
“We see the recent AI capex announcements like Stargate as a nod to the need for advanced chips,” he added, noting the reported ambition for the joint venture, backed by President Donald Trump, of Oracle ORLC, SoftBank, OpenAI to spend $500 billion on U.S. based AI infrastructure.
Cantor Fitzgerald analyst C.J. Muse is also bullish on the DeepSeek impact to Nvidia’s prospects, arguing that it brings the world closer to seeing Artificial General Intelligence, or AGI, become a technical reality.
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“There has been great angst as to the impact for compute demand, and therefore, fears of peak spending on GPUs,” Muse wrote in a note published Monday. “We think this view is farthest from the truth and that the announcement is actually very bullish with AGI seemingly closer to reality and Jevons Paradox almost certainly leading to the AI industry wanting more compute, not less.”
The Jevons Paradox, established by British economist William Stanley Jevons, suggests that technical advances in any resource that leads to more efficient use generates more, not less, consumption of it.
Jevons paradox strikes again! As AI gets more efficient and accessible, we will see its use skyrocket, turning it into a commodity we just can’t get enough of. https://t.co/omEcOPhdIz
— Satya Nadella (@satyanadella) January 27, 2025
“We would be buyers of Nvidia shares on any potential weakness,” he added.
Nvidia shares were last marked 12.5% lower in premarket trading to indicate an opening bell price of $124.76 each.
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