Nvidia, which soared to the top of the stock market by selling the computer chips fueling the world’s artificial intelligence boom, has been dealt a tough reality check by a small Chinese company that showed it could do more with less of what Nvidia makes.
On Monday, shares of Nvidia plunged more than 16 percent after the company, called DeepSeek, showed that it could train a cutting-edge A.I. system with a fraction of the Nvidia chips that had been used in the past by OpenAI, the maker of ChatGPT.
DeepSeek’s release challenged a tech industry consensus that in order to build bigger and better A.I. systems, companies would have to spend billions and billions of dollars on new data centers. At the center of those data centers would be the one thing that, perhaps until now, no A.I project could do without: a huge cache of Nvidia’s chips.
The Silicon Valley company, by some estimates, controls 90 percent of the market for specialized chips used to build A.I. systems. It has had a remarkable run since OpenAI released ChatGPT in late 2022. Over the past two calendar years, Nvidia’s revenue has jumped more than 200 percent to $126 billion, while the total value of the company has rocketed 700 percent as of Friday’ market close, peaking at $3.62 trillion in November.
But DeepSeek’s apparent breakthrough has shown that the appetite for Nvidia’s chips may not be as limitless as some had imagined just a week ago. While Nvidia is still in an enviable position — there is little competition for its A.I. chips — the companies that have been buying its technology could slow down their spending.
“Before, A.I. was bigger, better, faster. Bigger chips equal bigger A.I. capabilities,” said Patrick Moorhead, chief executive of Moor Insights & Strategy, a tech and semiconductor research firm. “But this was so quick it raises questions about how long that is true for Nvidia and whether people will need as many of its chips in the future.”
The DeepSeek release also dragged down shares other semiconductor companies, including Broadcom, Micron Technology and Taiwan Semiconductor Manufacturing Inc.
DeepSeek’s arrival has crystallized a concern that was already casting a shadow over Nvidia’s business. Late last year, A.I. leaders began to warn that the improvements to chatbots were slowing down. They had previously relied on a simple formula to deliver advances: culling as much data as possible from the internet and pushing into large language models — the technology that powers chatbots — on ever-bigger computers.
But that concept, which is known in the industry as Scaling Laws, has begun to fall out of favor because tech companies are running out of data. That has led companies to begin to experiment with new techniques to keep improving their systems. It has also fueled questions from Nvidia investors about the repercussions for its business.
At the CES technology trade show in January, Jensen Huang, Nvidia’s chief executive, said that the new techniques were “driving enormous demand for Nvidia’s chips.” He said that companies are using Nvidia’s chips to power models that do more reasoning in data centers, which means there will be more demand for its technology, not less.
In a statement on Monday, Mylene Mangalindan, Nvidia’s spokeswoman, said DeepSeek shows that those new techniques are working. She added that “DeepSeek is an excellent A.I. advancement.”
But investors have been watching to see if the changes in the way A.I. is being made would throttle Nvidia’s business, and DeepSeek’s success speaks to uncertainty about whether it will be cheaper to build and deliver A.I. systems.
“This was something that we have been working toward,” said Daniel Newman, chief executive of Futurum Group, a tech research firm. “Everyone has been pursuing this goal because the costs of training A.I. was too high.”
Not everyone is convinced that Nvidia’s rise is stalling. Its stock has been volatile and tumbled in August by more than 10 percent over reports the company would delay shipping its newest artificial intelligence chip. It later rebounded.
In a note for investors on Monday, Stacy Rasgon, a semiconductor analysts at Bernstein Research, said DeepSeek spent more money to build its system than it claimed. He added that being able to build more A.I. systems more efficiently should mean more demand because more companies can afford to invest in them.
The panic over the weekend, Mr. Rasgon said, “seems overblown.”
The changes in Nvidia’s value is the latest testament to how A.I. continues to upend the stock market. Last year, Microsoft replaced Apple as the world’s most valuable company for its early push into A.I. In June, Nvidia surged past both companies to claim the crown.
Now, Apple is back in the lead after it released its own A.I. system called Apple Intelligence for iPhones. But there are signs that it may not hold that position for long. This month, it disabled one of the signature capabilities — aggregating and summarizing news notifications — after customers and companies complained that its software was misrepresenting news reports.
“There hasn’t been a winner here,” Mr. Newman said. “The tools have been just OK. But if everyone can make better models at lower costs, then people may start adopting A.I.”
