Nvidia experienced a dramatic market selloff on Monday, with shares plummeting as much as 17.7% to $117.26 before recovering slightly to $120.56 by midday ET. The sharp decline came in response to the unexpected emergence of DeepSeek, a Chinese AI startup that unveiled its flagship R1 reasoning model last Monday, threatening to disrupt the established AI infrastructure landscape.
The market reaction was swift and severe across the tech sector. The Nasdaq 100 fell approximately 3% while the S&P 500 dropped nearly 2%. Nvidia, led by CEO Jensen Huang, stood to lose hundreds of billions in market capitalization from its Friday closing value of nearly $3.5 trillion as the world’s most valuable company. The stock had surged almost 130% over the prior 12 months before this dramatic reversal.
DeepSeek’s R1 model showcases advanced reasoning capabilities comparable to OpenAI’s o1 model but at a fraction of the cost. This cost efficiency has sparked concerns among investors about whether the massive capital expenditures on premium Nvidia chips remain necessary. The Chinese startup’s willingness to share its methodology openly has amplified fears about U.S. AI supremacy.
The selloff extended globally, with Microsoft down nearly 4%, Palantir falling 6%, and Alphabet dipping 3%. International chip companies suffered similarly: Dutch equipment maker ASML dropped 7.7% in Amsterdam, while Japanese firms SoftBank fell over 8% and Tokyo Electron slipped 4.9%. Nvidia supplier Advantest plunged 8.6%.
Despite the panic, some analysts see opportunity. Dan Ives of Wedbush Securities called it a rare buying opportunity, arguing that “no US Global 2000 is going to use a Chinese start-up DeepSeek to launch their AI infrastructure.” He emphasized that Nvidia remains the only chip company capable of launching autonomous, robotics, and broader AI use cases at scale.
The DeepSeek app has already reached #1 on Apple’s App Store for free apps, with Silicon Valley investor Marc Andreessen calling R1 one of “the most amazing and impressive breakthroughs” he’d ever witnessed. This comes as President Donald Trump signed an executive order to enhance America’s AI dominance and announced the $500 billion Stargate private-sector AI infrastructure project.
Critical Big Tech earnings from Meta, Microsoft, Apple, and Tesla are due this week, where investors will scrutinize returns on massive AI investments.
Key Quotes
While they don’t offer the cutting-edge tech of Nvidia’s graphics processing units, the efficacy of the budget version and the willingness of DeepSeek to share its know-how may start to chip away at Nvidia’s dominance
Susannah Streeter of Hargreaves Lansdown explains how DeepSeek’s open approach and cost-effectiveness could threaten Nvidia’s market position, even without matching the absolute performance of premium GPUs.
No US Global 2000 is going to use a Chinese start-up DeepSeek to launch their AI infrastructure and use cases. At the end of the day there is only one chip company in the world launching autonomous, robotics, and broader AI use cases and that is Nvidia
Dan Ives of Wedbush Securities pushes back against the panic, arguing that geopolitical concerns and Nvidia’s comprehensive ecosystem make this a buying opportunity rather than a fundamental threat.
The AI super-race is seeing new challengers emerge and not everyone is going to win. The companies that enjoyed first-mover advantage will now be under pressure to launch something even better or be left behind
Russ Mould, an AJ Bell investment director, captures the competitive intensity of the AI landscape and warns that early dominance doesn’t guarantee long-term success.
The potential for businesses to obtain the benefits of AI at a fraction of the cost could be good news for the wider market
Joshua Mahony of Scope Markets identifies a silver lining: while tech giants may face pressure, cost-effective AI could accelerate adoption across traditional industries, benefiting the broader economy.
Our Take
This market reaction reveals the fragility of AI investment narratives built on assumptions of sustained technological moats and necessary massive capital expenditures. DeepSeek’s emergence demonstrates that algorithmic innovation can potentially outpace hardware advantages, a lesson that should concern not just Nvidia but the entire AI infrastructure ecosystem.
The geopolitical dimension adds complexity—while Ives is correct that U.S. enterprises won’t adopt Chinese AI for sensitive applications, DeepSeek’s open-source approach means its innovations can be replicated and adapted globally. This represents a strategic challenge to the closed, capital-intensive model pursued by American AI leaders.
The real test comes this week with Big Tech earnings. If companies can demonstrate tangible returns on their AI investments and articulate differentiated value propositions beyond raw compute power, markets may stabilize. However, if they struggle to justify spending levels, we could see a broader reassessment of AI valuations across the sector.
Why This Matters
This market disruption represents a pivotal moment in the global AI race, challenging assumptions about the necessity of massive capital expenditures and premium hardware for AI development. DeepSeek’s cost-effective approach demonstrates that innovation can come from unexpected sources, potentially democratizing AI access for businesses that previously couldn’t afford enterprise-scale implementations.
The event highlights geopolitical tensions in AI development, with competing U.S. and Chinese spheres of influence emerging. It raises critical questions about whether first-mover advantage and massive infrastructure spending create sustainable moats in AI, or if algorithmic efficiency can level the playing field.
For businesses, this could signal a fundamental shift in AI economics. If comparable AI capabilities become available at lower costs, it may accelerate adoption across industries while pressuring companies like Nvidia that have benefited from premium pricing. The timing is particularly significant as Big Tech companies face investor scrutiny over their enormous AI capital expenditures, with earnings reports this week likely to address concerns about return on investment and competitive positioning in an increasingly crowded AI landscape.
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Source: https://markets.businessinsider.com/news/stocks/nvidia-tech-stocks-deepseek-ai-race-nasdaq-2025-1