Nvidia Shares Plummet as AI Sector Faces Uncertainty

On Monday, shares of Nvidia, a leading company in the AI industry, experienced a significant drop of 17 percent. This decline resulted in a staggering loss of $593 billion from the chipmaker's market value, marking it as the largest single-day loss recorded by any company.

The selloff began after the recent launch of a free AI assistant by Chinese startup DeepSeek. This new AI model promises to be cost-efficient and less data-intensive compared to existing options. The innovation caught the attention of industry leaders, including Sam Altman, CEO of OpenAI, who acknowledged DeepSeek's model as "impressive."

Altman took to social media to express enthusiasm about the competition, stating, "We will obviously deliver much better models and also it’s legit invigorating to have a new competitor!" This response reflects the ongoing transformation and competitive nature of the AI landscape.

The rise of DeepSeek prompted a worldwide selloff in technology stocks, impacting markets from Tokyo to Silicon Valley. In Japan, Nvidia’s supplier Advantest saw its shares drop by 10 percent on Tuesday, while Tokyo Electron, another chip equipment maker, fell by 5.3 percent.

In the United States, other tech giants also faced declines, with Broadcom down 17.4 percent, Microsoft falling by 2.1 percent, and Alphabet (Google's parent company) decreasing by 4.2 percent. The Philadelphia semiconductor index dropped by 9.2 percent, indicating its biggest decline since March 2020.

Investors are now increasingly concerned about the high valuations of many tech firms, particularly those involved in AI. David Bahnsen, chief investment officer at The Bahnsen Group, noted that the sky-high valuations offer little room for error and that the tech stocks' significant presence in investors' portfolios poses substantial risks.

The surge of interest in AI has led to a flood of investment in the sector over the past 18 months, driving valuations to unprecedented levels. However, the impact of DeepSeek’s debut highlights the potential for competition to reshape the market.

Notably, it is not just Nvidia and chipmakers that are feeling the pressure; companies connected to data centers are also affected. For instance, Malaysia’s YTL Power dropped by 7.5 percent on Tuesday, marking its third consecutive day of losses.

Market strategist Jun Rong Yeap described the situation as a case of "sell first, think later,’ indicating a level of uncertainty among investors regarding DeepSeek's long-term effects on the AI space. Despite the doubts, the market's reaction to potential risks shows a clear reluctance to embrace uncertainty.

Little is available regarding DeepSeek, a Hangzhou-based startup whose controlling shareholder is Liang Wenfeng, co-founder of a quantitative hedge fund. Their researchers revealed that the DeepSeek-V3 model, which launched on January 10, utilized Nvidia's H800 chips for training at a low cost of under $6 million.

Charu Chanana, chief investment strategist at Saxo, emphasized the increasing competition within the global AI field, suggesting that Nvidia's leading position could be challenged as others develop advanced models using more affordable technology.

As the market reacts to these developments, attention is expected to turn to upcoming tech earnings reports, where many company leaders will likely try to reassure nervous investors.

Nvidia, AI, DeepSeek