Nvidia Target Reevaluated by Citi Amid DeepSeek Threat

nvidia

On Monday, Nvidia’s shares plummeted over 16% in early trading, a reaction to the launch of an advanced AI model by DeepSeek, a Chinese startup. This significant market response was sparked by concerns over the efficiency and necessity of massive AI investments by tech giants, given DeepSeek’s claim of developing a competitive large-language model (LLM) for just under $6 million, using Nvidia’s less-capable H800 chips. This model, DeepSeek’s v3 LLM, is said to outperform models like those from OpenAI, which reportedly cost around $540 million to develop, and Meta’s Llama, at a cost of about $500 million.

The impact was swift, with Nvidia (NVDA) shedding nearly $480 billion in market capitalization at one point as shares dropped to an intraday low of $117.26. Currently, the stock is trading at $119.98, down $22.66 (15.89%). The ripple effect was felt across the market, particularly after DeepSeek’s app outpaced OpenAI’s ChatGPT to become the most popular AI tool on Apple’s App Store over the weekend.

However, not all analysts are convinced that DeepSeek’s success spells doom for Nvidia. Citigroup’s (C) Atif Malik remains bullish on Nvidia, questioning whether DeepSeek’s achievements were truly realized without the aid of more advanced GPUs through techniques like model distillation, where a smaller, less resource-intensive model is trained to replicate the performance of a larger, more complex one. Malik maintains his $175 price target and ‘Buy’ rating on Nvidia stock, arguing that the U.S. hyperscalers will not shift away from seeking Nvidia’s high-performance GPUs.

Malik also highlighted potential regulatory tightening due to U.S. export controls on advanced chips like the H800, which are now banned for export to China, suggesting that these restrictions could play a role in how companies like DeepSeek innovate under such constraints. This scenario underscores a broader narrative in the tech industry where innovation often leads to new regulatory challenges, particularly in AI where national security and economic interests intersect.

Despite the immediate market reaction, the situation with DeepSeek and Nvidia exemplifies the dynamic nature of AI development, where cost efficiency, performance, and geopolitical tech policies are all critical factors. The long-term implications for Nvidia might not be as dire as the day’s trading suggested, given its entrenched position in providing essential hardware for AI development. However, the event underscores the need for tech companies to continually reassess their investment strategies in AI, considering both technological advancements and the evolving landscape of international trade and technology policy.

WallStreetPit does not provide investment advice. All rights reserved.

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