Nvidia stock begins recovery after DeepSeek AI frenzy prompted near $600 billion loss

Nvidia (NVDA) stock rose nearly 9% Tuesday because the AI chipmaker began to get better from a large decline the prior day that shaved nearly $600 billion off its market cap.

Nvidia’s 17% freefall Monday was prompted by investor anxieties related to a latest, cost-effective artificial intelligence model from the Chinese startup DeepSeek. Some Wall Street analysts anxious that the cheaper costs DeepSeek claimed to have spent training its latest AI models, due partly to using fewer AI chips, meant US firms were overspending on artificial intelligence infrastructure.

That created a priority among the many investment community that Nvidia’s high GPU (graphics processing unit, or AI chip) prices could come under pressure and that demand for semiconductors could wane.

Nvidia’s $589 billion market cap decline was the biggest single-day loss in stock market history.

The DeepSeek announcements drove down not only Nvidia but the market at large, with the tech-heavy Nasdaq (^IXIC) dropping 3%. Chip stocks dropped across the board Monday, but some names began to get better. After dropping greater than 17% to begin the week, Broadcom (AVGO) rose 2.6% Tuesday.

Nvidia itself didn’t express much anxiety over the DeepSeek buzz, calling R1 “a wonderful AI advancement” in an announcement Monday.

Jensen Huang speaking at NVIDIA Keynote at Michelob Ultra Arena in Las Vegas, NV, on Jan. 6, 2025. Credit: DeeCee Carter/MediaPunch /IPX · DeeCee Carter/MediaPunch/MediaPunch/IPx

Wall Street analysts continued to reflect on the DeepSeek-fueled market rout Tuesday, expressing skepticism over DeepSeek’s reportedly low costs to coach its AI models and the implications for AI stocks.

JPMorgan analyst Harlan Sur and Citi analyst Christopher Danley said in separate notes to investors that because DeepSeek used a process called “distillation” — in other words, it relied on Meta’s (META) open-source Llama AI model to develop its model — the low spending cited by the Chinese startup (under $6 billion to coach its recent V3 model) didn’t fully encompass its costs.

“We imagine it’s crucial to validate these costs before drawing conclusions,” Sur wrote.

Danley added: “Given Deepseek is predicated on leveraging cloud service providers [Meta] and AI continues to be in its infancy, we lean towards the argument of continued strong growth in AI spending.”

Even so, DeepSeek “clearly doesn’t have access to as much compute as US hyperscalers and someway managed to develop a model that appears highly competitive,” Raymond James analyst Srini Pajjuri wrote in a note to investors Monday.