Nvidia (NVDA -16.97%) stock saw a dramatic sell-off in Monday’s trading following developments that have raised questions about the demand outlook for its advanced processors. The artificial intelligence (AI) leader’s share price closed out the day’s trading down 17.2%.
Nvidia plummeted today as investors, analysts, and tech leaders parsed new information about DeepSeek R1 — a new open-source AI model from a Chinese start-up that released last week. DeepSeek’s R1 is delivering performance that measures up to and even exceeds OpenAI’s latest commercially available ChatGPT system in some respects, raising concerns about the U.S.’s positioning in the AI race with China.
But the real kicker for Nvidia is that the R1 model was supposedly developed and trained using a relatively small number of the hardware leader’s processors. The training of DeepSeek’s new model was reportedly conducted using Nvidia’s A100 graphics processing units (GPUs) along with substantial support from less powerful hardware. Investors are concerned that R1 signals that high-performance AI models can be created with significantly lower hardware requirements, and Nvidia stock saw a big pullback as a result.
Is Nvidia stock a buy right now?
Today’s big sell-off for Nvidia stock is a reminder that AI industry is still young and volatile. While the GPU specialist currently commands significant technological and market-share advantages in the AI processor space, charting its long-term performance trajectory in the space still involves plenty of speculation. If the processing demands needed to develop, train, and scale artificial intelligence models wind up being significantly reduced, it’s reasonable to expect that Nvidia could face growth headwinds and underperform Wall Street’s growth estimates.
On the other hand, there’s still a lot about DeepSeek’s R1 that isn’t known yet, and some analysts and tech leaders have raised questions about whether it was really created without a large number of ultra-high-end processors. With the passage of time, it’s possible that today’s market reaction to the new Chinese AI model will wind up seeming severely overblown.
Up to this point, the best AI models have been heavily reliant on Nvidia’s high-end processors. Comments from Microsoft and Meta Platforms about their AI infrastructure spending plans and the $500 billion Stargate U.S. data center project generally point to a very strong demand outlook for the hardware leader. Nvidia’s push into categories including artificial-intelligence-as-a-service and robotics also point to significant growth opportunities outside of the core processors space. So while shares could continue to see volatility as the market digests the potential implications of DeepSeek’s RI and other catalysts, today’s big sell-off actually could be a good entry point for the stock.
Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.
