Is Nvidia’s Stock Drop a Temporary Blip? DeepSeek’s Impact on AI and GPUs
Nvidia Stock – Nvidia (NVDA) has recently experienced a 12% decline in its stock price from its all-time high. The drop was triggered by the rise of DeepSeek, a China-based AI startup, which announced that it had developed a competitive artificial intelligence (AI) model using significantly less computing power than major US AI developers like OpenAI. This news sparked investor fears that DeepSeek’s method could reduce the demand for Nvidia’s high-end graphics processing units (GPUs), which are crucial for developing AI models. However, recent comments from Alphabet (GOOG) CEO Sundar Pichai have suggested that these concerns may be overblown.
DeepSeek’s Disruption in the AI Space
Founded in 2023, DeepSeek was created by the successful Chinese hedge fund High-Flyer, which had been using AI for algorithmic trading. The company’s V3 large language model (LLM), released in December 2024, was followed by its R1 reasoning model in January 2025. These models have been compared to OpenAI’s latest offerings and have stirred up the tech sector.
One key difference with DeepSeek’s approach is its use of older-generation Nvidia GPUs, like the H100, due to the US government’s ban on selling cutting-edge hardware to Chinese firms. DeepSeek claims to have trained its V3 model for just $5.6 million, a tiny fraction of the billions spent by US firms like OpenAI to develop similar technology. Additionally, DeepSeek used innovative software techniques like distillation, a process that involves training smaller AI models with the knowledge of already-existing, large models. This process significantly speeds up training and reduces the need for extensive data collection and computational power, causing concerns about decreased demand for Nvidia’s hardware.
Investor Worries Over Nvidia’s GPU Demand
The fear among investors is that if other AI developers adopt DeepSeek’s efficient approach, Nvidia’s GPUs—specifically the H100—might see reduced demand. This, in turn, could negatively affect Nvidia’s profitability, which is heavily reliant on AI data center sales.
Nvidia is preparing for a record year in GPU sales. The company will report its fiscal 2025 earnings on February 26, with total revenue expected to reach $128.6 billion—a 112% increase from the previous year. Notably, 88% of that revenue is expected to come from the data center segment, driven by strong GPU sales. If Nvidia continues to experience significant demand, projections for fiscal 2026 suggest total revenue could reach $196 billion. However, if demand for Nvidia’s GPUs declines due to more efficient AI models, it could severely impact the company’s growth.
Alphabet’s Confidence in Nvidia’s Future
Despite the concerns raised by DeepSeek’s development, Alphabet, which is a major buyer of Nvidia’s AI chips, provides a strong vote of confidence for Nvidia’s future. Sundar Pichai, CEO of Alphabet, spoke on February 4 about the growing demand for inference computing power, which is used when AI models process live data and deliver responses in real-time. This shift in the industry toward inference models, such as those used by DeepSeek’s R1 and Alphabet’s Flash Thinking, will require even more computational power than before. Pichai suggested that the demand for Nvidia’s GPUs would continue to rise, as newer AI models will require more computing power for inference, rather than training alone.
Additionally, Meta Platforms CEO Mark Zuckerberg echoed Pichai’s sentiments, stating that the decline in training workloads doesn’t necessarily mean developers will need fewer chips. The demand for chips could remain stable as developers shift their focus toward inference tasks, which require significant computing power.
Nvidia’s Technological Edge
Nvidia’s GB200 GPU, based on the company’s Blackwell architecture, is also a key factor in its continued dominance in the AI market. The GB200 is capable of performing AI inference up to 30 times faster than its predecessor, making it the gold standard for AI data centers. Demand for the GB200 far outstripped supply when it began shipping in late 2024, and it remains in high demand due to its superior performance in AI tasks.
Alphabet’s Investment in AI Infrastructure
In a move that further strengthens Nvidia’s prospects, Alphabet announced plans to allocate $75 billion to capital expenditures (capex) in 2025, with a significant portion of this budget dedicated to data center infrastructure and chips. This represents a considerable increase from Alphabet’s 2024 capex of $52 billion, signaling continued investment in AI infrastructure and Nvidia’s technology.
Nvidia’s Stock a Potential Buying Opportunity
Despite the concerns raised by DeepSeek’s AI advancements, Nvidia’s position as a leading provider of AI GPUs remains strong. Alphabet’s support, along with increasing demand for inference computing and Nvidia’s technological advancements, suggests the company’s GPUs will continue to be in high demand. Given that Nvidia’s stock has recently dropped, it could represent a buying opportunity for investors looking to capitalize on the company’s long-term prospects in the AI space.
Disclaimer: This article is for informational purposes only and does not constitute investment advice. Cryptocurrencies and stocks, particularly in micro-cap companies, are subject to significant volatility and risk. Please conduct thorough research before making any investment decisions.
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