Nvidia stock $NVDA DOWN -11.5% marking its biggest one day market cap loss in history.

The U.S. stock market witnessed one of its most significant plunges in recent history today, with the Nasdaq 100 futures dropping by -1,000 points, marking the biggest single-day decline since September 2022. Also NVIDIA Corporation stock ($NVDA) has declined by -11.5%, marking its biggest one-day market cap loss in history. The reason for this market decline was the rise of a new player in the AI arena, DeepSeek, this startup introduced an AI model that can achieve sophisticated AI capabilities using open-source technology and fewer NVIDIA chips. DeepSeek is now responsible for erasing $2 trillion worth of market cap in US stocks.

NVIDIA’s Stock Decline

NVIDIA known particularly for its role in advancing the field of artificial intelligence (AI) through the production of cutting-edge AI chips, has faced a substantial downturn in its stock price. This morning, January 27, 2025, NASDAQ 100 futures plummeted by 1,100 points, marking the largest drop in over two years, which directly impacted NVIDIA’s stock value. $NVDA suffered a sharp decline of 5.3% this morning, its overnight reaction to Deepseek, wiping out $278.9 billion from its market cap. As the day progressed, losses deepened to 11.5%, with $400 billion erased in total, marking its biggest one-day market cap loss in history. This decline was compounded by fears of a broader economic slowdown and skepticism about the return on investment in AI technologies, which have been NVIDIA’s growth drivers.

Market Impact and Broader Implications

The impact of DeepSeek on NVIDIA’s stock was not just limited to market sentiment. DeepSeek’s ability to develop strong AI capabilities with less advanced and fewer chips had broader implications beyond NVIDIA. According to a recent analysis, DeepSeek has now been responsible for erasing $2 trillion worth of market cap in US stocks, signaling a significant shift in investor confidence from US tech giants to emerging AI technologies from China. This shift is particularly concerning given that the semiconductor sector, including NVIDIA, accounts for approximately 5% of the entire US stock market, surpassing its historical peak during the Dot-Com Bubble.

The competitive landscape in the AI industry has undergone a dramatic transformation, with DeepSeek’s AI model proving to be a formidable competitor and also offering a significant cost advantage. By leveraging fewer NVIDIA AI chips, DeepSeek manages to deliver high-performance AI solutions at a fraction of the cost. The Kobeissi Letter highlighted that while OpenAI’s ChatGPT costs around $60.00 per 1 million output tokens, DeepSeek R1, which is open-source, costs only $2.19 per 1 million output tokens. This cost efficiency, coupled with high performance, presents a lethal combination that has investors questioning the value propositions of OpenAI’s ChatGPT.

The Emergence of DeepSeek

Developed by a Hangzhou-based startup, DeepSeek has quickly ascended to prominence, becoming the number one app in the App Store in both the US and China within less than a month of its launch. This meteoric rise is particularly noteworthy given that DeepSeek was developed in under two months, a timeline significantly shorter than that of its competitors, showcasing an impressive speed of innovation.

DeepSeek’s capabilities have been benchmarked against leading AI models, where it has shown remarkable performance. In tests like AIME, MATH-500, and GPQA, DeepSeek has not only matched but in some cases outperformed ChatGPT, particularly in reasoning capabilities, which was highlighted in a recent benchmarking test where it surpassed OpenAI’s o1 model within approximately 8,500 steps.

Read more about Deepseek: China’s Deepseek AI Model Causes Tech Stocks to Decline

Market Dynamics and Investor Sentiment

The rapid rise of DeepSeek has caused a notable shift in investor sentiment. While U.S. stocks, particularly in the AI and semiconductor sectors, have seen sharp declines, Chinese stocks have shown resilience, with the Hong Kong 50 up 1.6% and the Shanghai Composite flat, indicating a possible shift in global tech investment focus. The Kobeissi Letter pointed out that this development has raised questions about the necessity of advanced AI hardware, as DeepSeek achieved its results with less sophisticated chips, impacting companies like Nvidia whose stock fell despite being in the AI chip business.

DeepSeek’s rapid rise to the top of the app charts, its technological prowess, and its economic efficiency have not only shaken the stock market but also highlighted a significant shift in the AI landscape. The Kobeissi Letter’s insights reveal a scenario where traditional tech giants are being challenged by innovative, cost-effective solutions from unexpected sources. As the AI industry continues to evolve, DeepSeek’s case serves as a reminder of the dynamic nature of technological innovation and market competition. The implications for AI development costs, hardware needs, and global tech supremacy are profound, setting the stage for a potentially transformative era in AI technology.

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