Will DeepSeek's Artificial Intelligence Model Impact Nvidia's Valuation?

Did DeepSeek's artificial intelligence (AI) model really cost less than $6 million to develop? If so, the question arises: what is big tech planning to invest tens of billions of dollars on this year? Moreover, there's the considerable $500 billion Stargate project that President Trump announced recently.

However, it might be worth considering that DeepSeek's reported costs are significantly underestimated. Recent reports indicate that the company could have spent over $500 million solely on hardware. The true impact of DeepSeek's AI model on the tech industry remains unclear, and it may take time for investors to fully understand the implications.

For now, a notable casualty from these developments is Nvidia (NVDA). Known for its key role in AI development, Nvidia's chips have been essential for companies working on cutting-edge AI models. The news regarding DeepSeek has already led to substantial losses in Nvidia's market valuation, raising concerns of a potential sell-off.

Reasons Not to Panic Over DeepSeek's AI Model

Let's not overlook that top talent in the tech field primarily works in the United States, for renowned companies like Nvidia, Microsoft, and Apple. The idea that a new Chinese start-up could overshadow some of the most successful technology giants is hard to believe.

It's likely that DeepSeek's development costs are being reported as much lower than the reality. Investors do not have audited financial statements to provide insight into the actual expenses involved. Additionally, OpenAI, the creator of ChatGPT, has raised concerns, claiming that DeepSeek may have improperly used its AI models in creating their chatbot. If this is true, it could further clarify how DeepSeek managed to achieve its results at a reduced cost.

At this moment, it's premature to assume that DeepSeek's efficiency exposes wasteful spending by major tech companies.

Nvidia's Stock Still Faces Challenges

Even if DeepSeek's AI model turns out to be more costly than claimed, this may not guarantee a recovery in Nvidia's stock valuation. The situation has highlighted AI spending across the industry and prompted questions on whether companies are too ambitious in their AI investments.

This scrutiny may lead businesses to reconsider their technology expenditures, especially amid economic uncertainties, such as the looming threat of tariffs. Consequently, firms may decide to cut back on AI project funding.

For Nvidia, which has experienced remarkable growth, a decline in demand could render its stock more susceptible to market corrections, raising concerns for investors.

Is Now a Good Time to Invest in Nvidia?

As of this week, Nvidia's stock has seen a 12% decrease at the start of the year. Current analyst projections suggest it is trading at 28 times its future profits, a relatively reasonable valuation for a leading tech company. If these projections are adjusted downward, however, Nvidia's valuation may become less appealing.

Nonetheless, for long-term investors, this could be an opportune moment to invest in Nvidia. With strong profit margins and a solid market position, now might be the right time to consider adding Nvidia to your portfolio, as it still holds a promising future.

No current investments are held in any of the stocks referenced. The author does not represent any specific publication.

DeepSeek, Nvidia, AI