by Jason Bodner
February 4, 2025
On Monday January 27th, China’s new AI DeepSeek caused an earthquake in AI-related stocks. We saw some of the largest single day moves in some of the strongest stocks of the past decade. NVIDIA alone now holds the dubious record of being the stock that lost the most market cap in a single day in history, losing nearly $600 billion in market capitalization, (17% of its market value) in one day.
Ouch.
The next day, Tuesday, NVDA gained $280 billion, so it’s been a wild and nerve-rattling ride.
Today, I hope to provide some insight on what I think about what is going on and what we should do next. I’m going to tell you why this is not the end of NVIDIA – and that’s not just because I own some shares.
First, the facts: DeepSeek, an AI startup in China, claimed they trained an AI model in two months at a cost of $5.6 million. This is in stark contrast to open AI, which took far longer and cost $100 million, partly because DeepSeek used inferior NVDA chips, the ones allowed to be exported to China.
The implications are clear: If DeepSeek can create comparable AI faster and at 5% the cost, then the whole game has just changed. AI-hungry models no longer need the fastest chips nor will they need as many chips, nor will they need as much time. This also implies that chips might move from a shortage to an oversupply, and that the flood of investment that has already happened and is slated to happen with the Stargate project is massive overkill – at least that’s the first reaction, which created Monday’s bloodbath.
For a deeper dive, let’s talk qualitative then quantitative analysis, first opinions, then a look at some data.
First, legitimate information out of China is often questionable. Communist China has a state-controlled media. The timing of their release is also suspicious:
- A few weeks after Nvidia CEO Jensen Huang splashed cold water on quantum computing stocks, saying the first useful quantum computers will come in 30 years, this put immense pressure on quantum computing stocks. (China’s Baidu is one of the companies racing for the QC prize.)
- President Trump routinely beat up on China during his campaign, saying they are not paying their fair share to the U.S. He frequently implied that sizeable tariffs on the country would come soon.
- Trump just announced a $500 billion investment into Stargate AI to make the U.S. the clear leader.
- China relies heavily on exports to U.S. consumers. A big tariff would impact them significantly.
Is it possible that China orchestrated a PR event like this to hit America where it hurts most? Nvidia has become the most crowded trade in the world. This DeepSeek release seemed directly aimed at them.
For a little comparison to Nvidia’s CEO Jensen Huang, DeepSeek’s founder, Liang Wenfeng, studied machine vision and machine learning. In 2015, aged 30, he launched a quantitative hedge fund called High-Flyer. It was hugely successful. Then he wanted to build human level AI. So, in 2021 he bought 10,000 H800 chips and told his smartest engineers to get the maximum output from the NVIDIA chips possible. Employing dozens of PhDs from top China universities, he built an AI competitor.
You should know something about Chinese stocks: It is illegal to short shares in China. That’s not the case in America. Short sellers abound, borrowing and selling shares they don’t own to hopefully buy them back lower. Could a brilliant computer-savvy hedge fund winner orchestrate a short trade of U.S. tech shares with a PR stunt? I think he could, but not without the help and blessing of the Chinese government.
That’s admittedly just speculation, so let’s get to the data. I believe in data. On January 27th, QQQ (the NASDAQ tracking ETF) fell almost 3% in one day. That level of ugly action is infrequent. In fact, since 2005 there were 120 prior instances the same or worse. The forward results were shocking:
The post 2-4-25: What Should Investors Do with Nvidia Now? appeared first on Navellier.
