NIX Solutions: DeepSeek’s AI Breakthrough Shakes Markets

Monday, January 27, 2025, will go down as one of the worst days for global tech companies. The success of Chinese AI startup DeepSeek triggered a sell-off in tech stocks, with Nvidia suffering the most. The company’s market cap plummeted by approximately $600 billion, marking the largest drop in U.S. stock market history. And this may only be the beginning.

Nvidia shares fell by 17.8% in a single day, the company’s worst drop since March 2020. This crash slashed its market value from $3.49 trillion to $2.89 trillion, dethroning Nvidia from its position as the world’s most valuable company. Previously, the record loss of $279 billion in September 2024 also belonged to Nvidia. In just 24 hours, the chipmaker fell from first to third place in global rankings, behind Apple and Microsoft, and may drop further.

NIX Solutions

Tech Sector Hit Hard

Nvidia’s dramatic fall set off a domino effect, dragging down shares of other AI-related companies. Broadcom lost 17.3%, AMD dropped 8%, Microsoft declined 3%, and Palantir sank by 7%. Even companies not directly tied to AI, such as energy suppliers Constellation Energy and Vistra, saw significant losses of 21% and 29%, respectively. Altogether, the U.S. stock market shed over $1 trillion in value that day.

The Nasdaq Composite fell by 3.5%, and the S&P 500 dropped by 1.8%. Notably, OpenAI escaped this turmoil by not being publicly traded, but analysts speculated its shares would have been among the biggest losers.

DeepSeek’s Disruption

The sell-off stemmed from a groundbreaking development by DeepSeek, a Chinese AI startup that demonstrated a way to train advanced AI models using a fraction of the resources required by industry giants like OpenAI and Google. For instance, DeepSeek trained a 685-billion-parameter model using just 2,048 Nvidia H800 AI accelerators at a cost of $5.6 million—dramatically less than its competitors.

Last week, DeepSeek unveiled R1, a reasoning AI model that outperformed OpenAI’s O1 in key tests. The company also published instructions for building efficient large language models capable of autonomous learning. To top it off, many of DeepSeek’s tools are distributed for free, and its paid services, like R1, are available at prices 90–95% lower than competitors.

Investors now realize that neural networks don’t require massive fleets of GPUs, challenging Nvidia’s business model, which relies heavily on computing accelerator sales for revenue.

What Lies Ahead for Nvidia?

Analysts are split on Nvidia’s future. Some predict a prolonged slump and advise against buying its shares despite their now-attractive prices. Others remain confident in Nvidia’s resilience, seeing the current dip as an opportunity to invest.

Interestingly, Nvidia has praised DeepSeek’s achievements, calling R1 an “excellent milestone in AI” that complies with U.S. export restrictions, adds NIX Solutions. The company dismissed speculation that DeepSeek’s progress might not be legitimate.

Nvidia also emphasized that its GPUs remain crucial for AI inference—running trained systems for end users—which requires significant computing power. “Inference requires a significant number of Nvidia GPUs and high-performance networks,” Nvidia stated.

While the long-term effects of DeepSeek’s disruption are yet to be seen, we’ll keep you updated on further developments in the AI and tech industries.