DeepSeek's rise exposes Nvidia's chinks

DeepSeek's dramatic rise exposes the greatest risk facing Nvidia: that the intense demand for its advanced chips could wane.

- Asa Fitch

Nvidia's success as the computational arms dealer for the artificial-intelligence boom has made it a target for a host of rivals seeking to diminish its dominance. That list includes other chip makers and customers that are developing their own AI chips to reduce their spending. But few in the tech world saw a nimble Chinese AI model as a risk to Nvidia's business, even if the final effect is unclear.

Nvidia has been perhaps the greatest beneficiary of the AI boom, with profit exceeding $63 billion in the last four quarters alone. Its shares have surged eightfold since the end of 2022.

With the excitement around DeepSeek emerging over the weekend, Nvidia's shares plunged around 17% Monday.

DeepSeek's advance was an excellent illustration of new ways of operating AI models. Doing the work of serving up such AI models to users—a process called "inference"—required large numbers of Nvidia's chips, it said.

The concern for investors is that DeepSeek's more efficient way of developing AI could upend a status quo where the most sophisticated AI models require the largest number of Nvidia's AI chips to train. AI development has thus far led to insatiable demand and supply shortages for its most advanced chips as big tech pours cash into AI data centers.

Some of its biggest customers, including Amazon.com, Google and Microsoft have also been developing their own in-house chip designs to support their AI platforms.

Rivals Intel and Advanced Micro Devices are pushing their own AI-specific chips to challenge Nvidia.