By Nvidia Corp (NASDAQ: NVDA) is taking a material hit this morning as investors respond to the launch of a Chinese startup’s highly efficient and cost-effective AI model.
DeepSeek claims to have spent less than $6.0 million only on developing a free, open-source large-language model.
Its latest reasoning model even outperformed OpenAI on several third-party tests.
More importantly, the company’s offering is just as cheap to operate as well since it doesn’t require Nvidia’s super expensive high-end GPUs.
Nvidia stock lost as much as 15% in premarket on Monday because a broader shift to DeepSeek’s models could significantly hurt demand for its products.
Is DeepSeek a threat to Nvidia?
DeepSeek’s launch is hurting a broad range of AI stocks because its offerings question the prudence of billions that big tech firms are spending on artificial intelligence models and data centers.
While the China-based startup has indeed created a fantastic model, it’s far from a miracle and, therefore, the “death knell of the AI infrastructure complex as we know it looks overblown”, according to Bernstein analyst Stacy Rasgon.
In a research note today, he even questioned if DeepSeek indeed built its artificial intelligence model for $6.0 million only, adding the startup likely did not disclose “other costs associated with prior research and experiments on architectures, algorithms, or data.”
Versus its year-to-date high, Nvidia stock is down about 17% at writing.
Nvidia stock sell-off is a buying opportunity
Stacy Rasgon maintained his “buy” rating on Nvidia stock on Monday – suggesting the sell-off may have created a unique opportunity to load up on the company’s shares at a deep discount.
More importantly, he’s not the only one among Wall Street analysts who’s keeping bullish on the AI darling.
Citi analyst Atif Malik also hailed DeepSeek’s model in a research note today, but said “In an inevitably more restrictive environment, US access to more advanced chips is an advantage.”
Malik, therefore, does not expect the leading AI companies to “move away from more advanced GPUs” like the ones from Nvidia.
The analyst also recommended buying Nvidia shares on the weakness this morning.
How US big tech may respond to DeepSeek
Note that DeepSeek is yet to establish beyond a shred of doubt that it can be a viable, cheaper alternative for larger enterprises to address their AI needs.
Plus, it’s reasonable to believe that the startup’s announcement will “drive even more urgency among US hyperscalers to leverage their advantage (access to GPUs)” and create even more powerful models to distinguish themselves from cheaper alternatives, according to Srini Pajjuri.
The Raymond James analyst also reiterated his “buy” rating on Nvidia stock today.
Shares of the world’s largest company by market cap printed a new year-to-date low on Monday.
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