Nvidia Loses $500 Billion as Chinese Startup DeepSeek Disrupts AI Industry DeepSeek, a rising Chinese AI powerhouse, has shaken Nvidia’s dominance, wiping $500 billion off its market cap in just one week. By slashing AI costs with an innovative approach, DeepSeek threatens Nvidia’s monopoly and raises doubts about the stability of the entire tech sector
The U.S. tech market has been rocked by unprecedented numbers: Nvidia (NVDA), the undisputed leader in the AI semiconductor industry, has seen its market value drop by over $500 billion in just one week, a figure equivalent to the entire market capitalization of giants like Mastercard.
NVDA’s stock price has fallen more than 20%, triggered by the emergence of a new player in the global AI scene: Chinese startup DeepSeek. This could be a turning point in the AI ecosystem that raises crucial questions about the future of Nvidia’s monopoly.
DeepSeek: The Chinese Startup That Disrupted the Market
How can a Chinese startup undermine a tech giant like Nvidia and, with it, the entire US tech sector?
The answer lies in DeepSeek’s innovative strategy, which has radically reduced the cost of access and use of artificial intelligence solutions.
DeepSeek’s business model is based on the use of less advanced hardware than Nvidia’s high-end chips, leveraging an open-source architecture to maximize efficiency.
This approach has allowed the startup to develop highly competitive and scalable AI tools at a fraction of traditional costs.
For years, the AI market has been considered elitist, with almost insurmountable barriers to entry due to the huge investments required in data centers, high-end hardware, and proprietary software.
Nvidia, with its high-performance and expensive chips, has dominated unchallenged, consolidating its monopoly. However, DeepSeek’s entry has shown that it is possible to create world-class AI solutions without having to rely exclusively on Nvidia’s technology, making the sector more accessible to new players.
Nvidia’s Monopoly Under Attack
Nvidia is known for its extraordinary profit margins, above 50%, a level of profitability never achieved even by giants like Apple. This has allowed it to grow rapidly and become one of the most important companies in the S&P 500, with a price/earnings (P/E) ratio of 56x—already high but considered sustainable thanks to expectations of exponential growth in company profits.
The key to Nvidia’s success has been its ability to position itself as an indispensable supplier for the development and execution of advanced AI models. However, DeepSeek is challenging this dominant position.
The Chinese startup uses low-end Nvidia chips, proving that the giant’s most expensive products are not necessary to achieve competitive results.
If DeepSeek’s solutions prove reliable and replicable, they could inspire hundreds of new initiatives, especially in the United States, further eroding Nvidia’s market share and reducing its growth prospects.
Financial analysts are already alarmed.
Nvidia’s valuations are based on assumptions of sustainable growth in margins and revenues, but the possible proliferation of competitors like DeepSeek could drastically reduce demand for Nvidia’s high-end chips.
This would lead to a downward revision of target prices and margin expectations, further penalizing the value of the shares.
Systemic Risk for the Technology Sector
Nvidia’s crisis could have repercussions well beyond the company itself, calling into question the entire US technology sector. The average P/E of tech companies in the US is now above 40x, which is already significantly higher than the historical average for growth stocks. According to FactSet, earnings growth expectations for the tech sector are above 20% per year, partly justifying these high valuations.
However, the sustainability of these multiples depends largely on the success of investments in data centers, supercomputers, and AI infrastructure.
If DeepSeek’s approach proves that cheaper solutions less dependent on Nvidia’s advanced hardware can be just as effective, the entire growth narrative of the tech sector could collapse.
The high multiples of technology companies would become unsustainable, leading to a general contraction in valuations.
This systemic risk is amplified by the growing dependence of the US stock market on technology stocks.
Nvidia, along with other giants such as Apple, Microsoft, and Alphabet, represents a significant portion of the S&P 500—approximately 30%.
A prolonged decline in the value of Nvidia could trigger a domino effect, dragging down the entire index and reducing investor confidence in the tech sector.
Geopolitical Implications
An additional element of complexity is represented by the geopolitical implications. The emergence of DeepSeek highlights the growing role of China in global technological innovation.
This could intensify competition between the United States and China, not only on an economic level but also on a strategic one.
The United States could adopt protectionist measures to safeguard its technology companies, but this would risk further fragmenting the global market and slowing down the overall advancement of the artificial intelligence industry.
According to the IMF, the start of a trade war could even lead to a 7% contraction in global GDP. In essence, an excessive reaction by the U.S. administration to this evidence could end up pleasing voters but lead to a new wave of global slowdown.
Is This the End of the Monopoly or a Temporary Crisis?
DeepSeek’s impact on the tech market and on Nvidia is still evolving, but it is clear that we are facing a potential turning point.
If the Chinese startup can deliver on its promises and prove its model, Nvidia’s monopoly could be seriously challenged.
This scenario would have significant implications not only for Nvidia, but for the entire US tech sector, which could face a reassessment of its growth prospects and valuations.
Likewise, it should be remembered that DeepSeek, while widely discussed today, is still a startup, and it is not necessarily able to effectively handle the challenges that lie behind the world of AI. If this proves to be the case, the collapse of NVDA shares would be partly unjustified.
Original article published on Money.it Italy 2025-01-28 10:28:12. Original title: Nvidia crolla del 20%, bruciati $500 miliardi. È la fine del suo monopolio nell’AI?
