Nvidia Shares Plunge 13% as DeepSeek AI Model Raises Industry Questions

Shares of Nvidia tumbled 13% on Monday, reflecting investor concerns over the implications of a new AI model launched by Chinese start-up DeepSeek. The company’s innovative approach is prompting fears of reduced investment in AI infrastructure, particularly among U.S. technology giants.

Nasdaq Futures Slide Amid Nvidia Pressure

Nasdaq futures, heavily weighted toward tech stocks, fell sharply in premarket trading. Nvidia, a leader in AI-related technologies, faced increased scrutiny following the release of DeepSeek’s flagship AI model, DeepSeek R1, which claims to rival products like OpenAI’s ChatGPT at a significantly lower cost.

Investors are now questioning the sustainability of capital expenditures on AI infrastructure, a key growth driver for Nvidia. U.S. Tiger Research analysts highlighted this uncertainty in a client note:

"For Nvidia investors, the focus is whether capital expenditure growth in 2026 can maintain its pace, particularly in a market already priced for perfection."

While the analysts advised caution, they stopped short of recommending short positions, suggesting a “wait-and-watch” approach instead.

DeepSeek’s Disruptive AI Model Stirs Market Concerns

DeepSeek R1’s release has reignited debates about the massive spending on AI infrastructure. The model, described as an open-source competitor to offerings from OpenAI and Meta, has sparked questions about whether such investments—amounting to hundreds of billions of dollars—are still justified.

Bernstein analysts acknowledged the breakthrough represented by DeepSeek, noting its ability to deliver competitive performance at a fraction of the cost of existing models. However, they argued that the market’s reaction was exaggerated:

"If DeepSeek cuts costs by 10 times, it’s worth noting that model costs have already been rising at that pace annually, which is unsustainable."

The brokerage also emphasised the importance of innovations like DeepSeek, which could improve efficiency in existing hardware while advancing the AI industry.

AI Demand Keeps Infrastructure Investments Relevant

Despite concerns, Bernstein analysts believe the need for expanded AI infrastructure will persist. They noted that new computing capacity will likely be absorbed by surging demand for AI applications, mitigating fears of a downturn in capital expenditure.

Bernstein urged investors not to be swayed by “doomsday scenarios” circulating on social media platforms like Twitter. The firm remains bullish on Nvidia and its peers, such as Broadcom, maintaining "outperform" ratings based on their long-term AI prospects.

Wall Street Reacts to DeepSeek Developments

Broader Wall Street futures were also under pressure due to the market implications of DeepSeek’s launch. The disruptive potential of the company’s open-source models has fuelled speculation about a recalibration of AI-related investments.

For Nvidia, whose stock price has benefited significantly from its role in AI development, the arrival of cost-effective alternatives like DeepSeek R1 adds a layer of uncertainty. However, analysts agree that innovations like this are necessary to sustain the industry's growth trajectory.

(Sources: investing.com, reuters.com, ChatGPT)