Chinese Deepseek left traders shocked while sinking NVIDIAs stock
What happens when a single event shakes up the entire stock market? That’s exactly what we’re seeing with the recent drop in NVIDIA share price, which fell over 4%. But here’s the twist: the story isn’t just about NVIDIA. It’s about something called “Chinese Deepseek,” which is causing chaos across multiple tech stocks. While NVIDIA struggled, one stock, China Merit Interactive, surged directly linked to Deepseek. So, what does this all mean for investors, and how might it impact the future of tech?
This is a moment we can’t ignore. Major companies like Apple, Microsoft, and Meta are set to report their earnings. Let’s break down the details and explore what’s going on.
What is Chinese Deepseek?
Chinese Deepseek is a new AI startup that’s making waves. It was started just over a year ago in Hangzhou by Liangan Fun, the head of an AI-focused hedge fund. Deepseek has created an AI model that can compete with big names like ChatGPT but at a much lower cost. Deepseek uses cheaper hardware, unlike other AI models that need expensive, powerful chips. This challenges the idea that AI has to be super costly and energy-hungry to work well.
The company’s app quickly shot to the top of download charts, showing how popular it has become. Deepseek’s rise is making tech companies like NVIDIA, which rely on expensive chips, rethink their value. It also adds pressure to the ongoing trade tensions between the U.S. and China. The U.S. has put restrictions on sending advanced chips to China, hoping to stop breakthroughs like this one. But Deepseek’s success shows that AI can grow in new and surprising ways, even with these challenges.
The Event That Shocked Traders
NVIDIA’s share price dropped 10% pre-market, shaking Wall Street. The cause? A report about a Chinese company, DeepSeek, making waves in AI. DeepSeek claims to have created a powerful AI model that uses fewer chips. This news sparked fears about NVIDIA’s long-term growth. Traders worried: could this mean a slowdown in AI spending?
However, experts say this reaction might be too dramatic. In the short term, AI spending is still expected to fuel NVIDIA’s revenue growth for the next year.
But beyond 2026, questions arise. Could fewer chips mean less demand for NVIDIA’s products? This uncertainty could impact investor confidence.
NVIDIA’s Market Position Before the Incident
Before this shock, NVIDIA stood tall in the AI revolution. Their chips were critical for AI projects, and demand was soaring. Four major customers accounted for 48% of their revenue last quarter. This concentration shows their strong but narrow customer base.
NVIDIA was also benefiting from a massive wave of AI-related investments. Companies like Meta are prioritizing AI spending, shifting from dividends to tech growth. This reshaped how firms compete, with NVIDIA leading the charge. Despite recent concerns, their role in the AI economy remains significant.
The Impact of the Shock on NVIDIA Share Price
On January 27, 2025, NVIDIA’s share price took a huge hit, losing over $600 billion in market value. The stock dropped 18%, leaving traders shocked. At one point, it fell to $116, the lowest for the day. The market reaction was fierce, and many were surprised by the sharp decline.
The market’s reaction was swift and severe. NVIDIA’s share price fell to $118.42, marking its steepest drop since March 16, 2020.This decline not only impacted NVIDIA but also affected other tech companies. Alphabet, Microsoft, and Oracle saw significant losses in their market values.
Image Source: Google Finance
Despite the uncertainty, the broader market wasn’t hit as hard. Stocks like Microsoft, Tesla, and some energy companies also dropped, but not as much as NVIDIA.
Many investors are still wondering if this is a chance to buy NVIDIA share price at a low price. Some, like Dan Ives, see this drop as a buying opportunity. He believes that the AI market is only growing, and NVIDIA will play a huge role. For now, though, traders are waiting for more answers.
Reactions from Traders and Market Analysts
DeepSeek’s model was developed in just two months with an investment of under $6 million. It raises questions about the future demand for NVIDIA’s high-end GPUs.
The crash came after China’s DeepSeek AI model made headlines. NVIDIA’s statement didn’t calm the fears. They said DeepSeek needed a lot of NVIDIA GPUs, but their explanation wasn’t enough. Traders were left wondering: did China use illegal GPUs, or is this a bigger issue?
Analysts are now reassessing the AI landscape, considering the implications of DeepSeek’s advancements. Some view this development as a potential disruption to the AI sector, while others believe it may be an overreaction. The situation underscores the rapid pace of innovation in AI and the need for established companies to adapt swiftly to emerging competitors.
However, many believe the shock is just a knee-jerk reaction. While the market is reacting to the unexpected competition, there are now more AI tools available, and DeepSeek seems to be firmly in the game.
Final Words
DeepSeek’s surprise success has left traders questioning NVIDIA’s future. The company’s sudden drop in stock price highlights the fast-changing nature of the AI industry. While some analysts see DeepSeek as a real threat, others believe the market overreacted. This situation shows how quickly new players can disrupt established companies. NVIDIA will need to adapt and prove its value in the face of rising competition. For now, it’s uncertain if this is a lasting shift or just a temporary shock. Only time will tell how NVIDIA responds and whether the market’s reaction is justified.