Nvidia's stock took a big hit on Monday. It lost a staggering $600 billion in market value. This marks the largest single-day market cap loss in history. All eyes are now on a Chinese AI startup called DeepSeek.
The day started with Nvidia trading at $140. However, it dropped 16% and closed at $118. This decline followed news about DeepSeek’s low-cost AI advancements and impressive performance. The drop in Nvidia's stock reflects a wider trend, with the U.S. tech industry reportedly shedding around $1 trillion in market capitalization. Concerns are even spilling over into other sectors, including cryptocurrency.
DeepSeek has shown it can outperform OpenAI’s models while spending significantly less—reportedly under $5 million. This achievement has shaken up the tech world, which has typically focused on raw computing power over efficiency. As a result, DeepSeek has become the top free app in the U.S., according to Appfigures.
Another factor driving the sell-off is the claim that Chinese developers are using Nvidia H100 chips to train their AI models. These are the same chips that the U.S. has restricted from being sold to China. This raises questions about how effective U.S. export controls really are and how much access China has to advanced technology.
Scale AI's CEO, Alexandr Wang, mentioned, “The Chinese labs have more H100s than people think. I understand that DeepSeek has about 50,000 H100s, which they can’t disclose due to U.S. export controls.”
The U.S. has been hesitant to embrace open-source AI development. This may have unintentionally given Chinese companies a leg up in the AI race. Professor Ion Stoica from UC Berkeley noted that regulatory concerns and national security fears have played a role. He stated, “When I say open source, I mean open data, open training algorithms, open weights, and open evaluations. We’re in a situation where Chinese companies are betting on open source, unlike the U.S., and they’re clearly ahead.”
While Stoica didn’t speculate on the tech stock market, he did highlight the potential impact of lower AI model costs. “If the cost of building or serving these models drops by 10 or 100 times, it could hurt these companies. But if it drives innovation and accelerates AI development, these companies could become even more valuable,” he explained.
DeepSeek, owned by the hedge fund High-Flyer and based in Hangzhou, China, is already facing scrutiny. Concerns about transparency and potential influence from the Chinese government are rising. Social media users have criticized DeepSeek's AI model for refusing to answer political questions about the Chinese government and President Xi Jinping.
DeepSeek has done more than just create a cheaper AI model. It has exposed inefficiencies in how major tech companies operate. While giants like OpenAI and Anthropic spend billions on computing power, DeepSeek reportedly achieved similar results for just over $5 million. Their model matches or even beats OpenAI’s GPT-4o.
The release of DeepSeek's free, open-source model has sent shockwaves through the AI industry. This development raises existential questions about the future of AI. In response, Nvidia's stock fell by 13%. Nasdaq 100 futures dropped by 3.3%. AI tokens also took significant hits, despite DeepSeek offering its services for free.