The stock of Nvidia has experienced an extraordinary surge in the past few years. The same was true of its decline on Monday, which resulted in the loss of $595 billion in wealth. That is approximately equivalent to the combined value of PepsiCo, McDonald’s, Starbucks, and Target.
A few years ago, Nvidia was primarily recognized in the gaming and crypto communities. However, it made a significant impact on the zeitgeist after experiencing a significant increase in sales as a result of customers’ desire to use its processors to train their chatbots and other artificial intelligence products.
In 2023, Nvidia’s stock price more than tripled, and it subsequently doubled in 2024, establishing it as a household name. As the “Godfather of AI,” CEO Jensen Huang was praised by investors and analysts. Nvidia evolved into a $3 trillion-plus colossus and competed with industry giants such as Apple to become the most valuable company on Wall Street.
However, all of this came to a halt on Monday, at least for a brief period, when a Chinese startup named DeepSeek announced that it had developed a large-language model that could perform at a similar level to ChatGPT and other U.S. rivals, but with significantly less computing capacity.
An examination of the events that led to this juncture is given below:
Gaming was the source of Nvidia’s origins.
The graphics processor unit, or GPU, was developed by the Santa Clara, California-based technology corporation in 1999. This innovation was instrumental in the expansion of the PC gaming market and revolutionized the field of computer graphics. Nvidia’s specialized chips are now essential components that enable various forms of artificial intelligence, including the most recent generative AI chatbots, such as ChatGPT and Google’s Gemini.
Huang has referred to AI as “the next industrial revolution,” and Nvidia’s GPUs are engineered to execute artificial intelligence duties more rapidly and efficiently than general-purpose chips such as CPUs. Nvidia chips are being acquired by technology titans as they continue to explore AI, a trend that is facilitating the autonomous operation of automobiles and the production of art, music, and stories.
Nvidia’s revenue experienced significant growth each quarter as a result of the demand. Huang stated on February 23, 2023, that “AI is at an inflection point, setting up for broad adoption of AI across all industries,” following Nvidia’s quarterly profit surpassing analysts’ expectations. At that time, the organization’s quarterly revenue was $6.05 billion.
Three months later, the amount increased to $7.19 billion, and three months after that, it nearly doubled to $13.51 billion. Revenue has since increased to $35.08 billion in the three months ending in October 2024.
The company’s stock price has also experienced a significant increase, and its total market value has rapidly surpassed that of its competitors, including Microsoft and Intel. Last year, Nvidia alone was responsible for over one-fifth of the total return of the S&P 500 index. This stock had an impact that was more than triple that of Apple, and no other stock came close.
Invest in an S&P 500 index fund today, and Nvidia will receive nearly 6 cents of every $1. This leaves 94 pennies for the remaining 499 companies.
Unlike the dot-com boom, Nvidia’s ascent was fueled by genuine money, and its stock price increased in anticipation of future growth. On Monday, those anticipations were called into doubt.
DeepSeek and its apparent lower-cost operations have sparked concerns regarding the necessity for companies to allocate as much money toward Nvidia processors as had been previously anticipated. Stocks in the AI industry, including suppliers to the chip industry and power companies that hoped to electrify the vast data centers that were anticipated to be constructed to operate those processors, were impacted by the concerns. However, Nvidia’s stock was the most prominent symbol of the AI windfall, which is why it was in the spotlight.
The nearly 17% decline in Nvidia’s stock on Monday was perceived by some on Wall Street as an opportunity rather than a warning of impending calamity, as the stock became more affordable. In the event that AI becomes more cost-effective to operate, it could potentially introduce the industry to new types of consumers and software innovations that could ultimately be beneficial in the long term.
“This is not the first time a major tech stock has faced existential questions,” stated John Belton, portfolio manager at Gabelli Funds, in reference to Nvidia itself. “We have observed comparable scenarios with Microsoft, Apple, Meta, Google, Amazon, and Netflix—companies that were initially questioned but ultimately recovered.”
According to Brian Colello, strategist at Morningstar, the overwhelming momentum behind the movement remains unaffected by DeepSeek’s entry, which undoubtedly adds uncertainty to the entire AI ecosystem.
“We are of the opinion that the demand for AI GPUs continues to exceed the supply,” he stated in a report. “So, while slimmer models may enable greater development for the same number of chips, we still think tech firms will continue to buy all the GPUs they can as part of this AI ‘gold rush.'”
In contrast, Nvidia’s stock fluctuated between gains and losses in the early hours of Tuesday following its most severe decline since the 2020 COVID-19 pandemic. Subsequently, it experienced a slight rebound and concluded the day nearly 9% higher.
