24/7 Wall St. Insights:
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Semiconductor stocks were reeling this morning after China’s DeepSeek released a cheap AI model that was more powerful than current U.S. AI models.
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Nvidia (NVDA) stock fell 10% at the open as the DeepSeek R1 LLM was developed on underpowered last generation GPUs.
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Using workarounds to counter the lack of computational power, DeepSeek has created a state-of-the-art model that challenges U.S. AI dominance.
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NVIDIA Continues To Meltdown
Nvidia’s bleeding continued in midday trading with shares sliding 17% as the market fears demand for its expensive AI chips will fall.
With DeepSeek providing a superior performance model that can be brought to market quicker at a fraction of the cost, the need for premium-priced chips could be dramatically curtailed.
While hyperscalers will undoubtedly still want Nvidia’s most-advanced chips like the pending Blackwell accelerators and the next generation Rubin chips, demand around the periphery from small- to mid-sized companies could wane considerably.
A big price to pay
The difference between the H800 chips DeepSeek used and the H100 chips typically used by data centers is the former are dumbed-down versions that Nvidia significantly reduced chip-to-chip data transfer rates to comply with U.S. restrictions on export of advanced technology to China. The H800 was also subsequently banned for export.
The price differential is stark. The cost to train DeepSeek was about $5.5 million versus over $100 million for OpenAI’s ChatGPT.
The impact is being felt far and wide in the AI sector. Also falling hard is:
With DeepSeek providing a superior performance model that can be brought to market quicker at a fraction of the cost, the need for premium-priced chips could be dramatically curtailed.
While hyperscalers will undoubtedly still want Nvidia’s most-advanced chips like the pending Blackwell accelerators and the next generation Rubin chips, demand around the periphery from small- to mid-sized companies could wane considerably.
A big price to pay
The difference between the H800 chips DeepSeek used and the H100 chips typically used by data centers is the former are dumbed-down versions that Nvidia significantly reduced chip-to-chip data transfer rates to comply with U.S. restrictions on export of advanced technology to China. The H800 was also subsequently banned for export.
The price differential is stark. The cost to train DeepSeek was about $5.5 million versus over $100 million for OpenAI’s ChatGPT.
The impact is being felt far and wide in the AI sector. Also falling hard is:
- Broadcom: Down 18.6%
- Marvell Technology: Down 18.2%
- Oracle (NASDAQ:ORCL): Down 14.9%
Oracle is taking a hit because not only is it one of the largest data center operators in the country, but it just announced a massive $500 billion AI joint venture with OpenAI and SoftBank (OTC:SOBKY). Together they are building a 1.7 million square foot data center in Texas that Nvidia and Arm Holdings (NASDAQ:ARM) were going to be early technology partners in the project. ARM stock is down 12%.
Hundreds of billions of dollars vaporized
These tech leaders had seen trillions of dollars in valuation added to their stocks over the past few years. Today, Nivida alone lost about $600 billion in market capitalization and fell from the most-valuable stock on the market to the third most-valuable.
Hundreds of billions of dollars vaporized
These tech leaders had seen trillions of dollars in valuation added to their stocks over the past few years. Today, Nivida alone lost about $600 billion in market capitalization and fell from the most-valuable stock on the market to the third most-valuable.
Stocks on the move today
Here’s an updated market snapshot for today:
| Company | Ticker | Change (%) |
|---|---|---|
| Salesforce Inc | CRM | +1.55% |
| Apple Inc | AAPL | +1.28% |
| NVIDIA Corp | NVDA | -13.58% |
| Microsoft Corporation | MSFT | -3.35% |
| Vistra Corp | VST | -24.19% |
Additionally, the Nasdaq Composite Index is down approximately 3% today, reflecting a broader decline in technology stocks.
We’ll monitor the markets to see how these stocks perform by the end of the day. Currently, investors are making decisive moves in response to market dynamics.
Nvidia (NASDAQ:NVDA) dropped 10% at the market open this morning, on news over the weekend about the release from China’s artificial intelligence lab DeepSeek of its R1 large language model (LLM).
The AI chipmaker was not alone as the tech sector trembled over the development of a low-cost, powerful, efficient AI model. Broadcom (NASDAQ:AVGO) tumbled 11%, Marvell Technology (NASDAQ:MRVL) fell 13%, and Advanced Micro Devices (NASDAQ:AMD) was down almost 6%.
Nvidia, though, was sharply hit because it could be one of the biggest losers. Using underpowered Nvidia H800 graphics processing units (GPUs), DeepSeek was able to develop hacks and workarounds to create an AI model that was superior in performance to OpenAI’s latest iteration of ChatGPT o1, while using far fewer processors and consuming less time.
Why is DeepSeek so worrisome?
R1 was able to be quickly trained using only 2,048 Nvidia GPUs at a cost of less than $6 million. Moreover, it comes only a month after DeepSeek had delivered V3, an LLM that took only two months to train and was found equal to OpenAI’s GPT-4o and Anthropic‘s Claude Sonnet 3.5. It was also able to outperform Meta Platforms (NASDAQ:META) Llama 3 as well as Alibaba’s (NYSE:BABA) Qwen2.5.
That was especially notable because it took Meta’s Lllama 3.1 the equivalent of 30.8 million GPU hours using 16,384 full-powered H100 GPUs. DeepSeek took the equivalent of about 2.8 million GPU hours. R1 is also reportedly 27 times cheaper than ChatGPT.
What’s it mean for NVDA stock?
Nvidia has been premium-priced for sustained chip sales and earnings growth. A bargain-basement workaround that is open-source to allow users to manipulate and fine-tune the algorithm jeopardizes the need for the premium Nvidia charges for its chips.
Certainly, the AI chipmaker’s business isn’t going to dry up. The recently announced $500 billion Stargate project, for example, will still be replete with Nvidia advanced Blackwell accelerators, but there is likely a strong headwind undercutting NVDA’s premium valuation.
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