Nvidia, the artificial intelligence giant, lost nearly $600 billion in value during Monday’s stock market swoon.
@TomOrlik and @D_W_Wilcox have a piece out in Bloomberg this weekend on the AI productivity paradox. As @erikbryn @ChadSyverson and I discuss, we should expand implementation lags (https://t.co/qjjMJdEhVM). Organizations take a long time to change!
Link: https://t.co/471BxmeSGK
— Daniel Rock (@danielrock) February 1, 2025
This dramatic fall, one of the largest single-day losses for a public company on record, raises questions about the future of the tech sector and the financial markets at large. Some might attribute Nvidia’s downturn to geopolitical tensions or shifts in trade policy.
However, a deeper analysis suggests a more systemic issue within the industry.
i have been saying for too long (https://t.co/Az9EVfZMWL) your messiahs are businessmen! https://t.co/UAoBWgqu2b pic.twitter.com/hlsvm9dy9V
— Kylie Robison (@kyliebytes) January 31, 2025
The ouroboros, an ancient symbol depicting a serpent eating its own tail, provides an apt metaphor for understanding the current predicament of Big Tech. The ouroboros illustrates how these firms might be investing excessively in each other, ultimately cannibalizing potential returns.
2-3February: What impact do market watchers say @deepseek_ai will have on @nvidia? What appears to be left out of the Chinese startup's claimed $5.58M cost of developing one of its models? Read about DeepSeek & $NVDA in my latest StockWatch for @GENbio: https://t.co/snT6IJBpqZ
— Alex Philippidis (@AlexWestchester) February 3, 2025
Even after Monday’s significant dip, the disparity in valuations between Big Tech and the rest of the market remains vast. The financial community is divided on whether Big Tech will continue to outperform other sectors or if other companies will close the gap by leveraging artificial intelligence for productivity gains. The ouroboros suggests a third scenario: tech firms might increasingly devour their own potential through reckless intra-sector investments, leading to diminishing returns.
Monday’s market correction may indicate a growing awareness among investors of the risks of overinvestment in tech. The ongoing fluctuations signal a crucial moment for financial markets and underscore the need for a more balanced investment approach. Nvidia’s shares have gone into a days-long downward spiral after the announcement of a new start-up in the artificial intelligence sector, a Chinese company known as DeepSeek, which released a model comparable to ChatGPT.
This has caused investors to reconsider the value of Nvidia’s newer, more expensive chip architecture. Nvidia’s current price-to-earnings ratio stands at 30.1, a significant contraction in valuation multiples. This parallel might suggest that Nvidia stock could soar higher, similar to its performance throughout 2024.
DeepSeek disrupts AI chip market
However, there are nuances to consider, particularly with the uncertain demand trends for AI infrastructure, especially GPUs, which are Nvidia’s core products. Some analysts might revise their revenue and earnings projections for Nvidia in light of the DeepSeek news.
While Nvidia is expected to remain a leader in the AI space, the extent of its dominance and the resulting impact on its stock price remains uncertain. Nvidia’s roots began in gaming, but now its specialized chips are key components that help power different forms of artificial intelligence. Tech giants are snapping up Nvidia chips as they wade deeper into AI.
The demand helped Nvidia’s revenue grow by eye-popping levels, quarter after quarter. CEO Jensen Huang has dubbed AI “the next industrial revolution.” On Feb. 23, 2023, Huang said, “AI is at an inflection point, setting up for broad adoption reaching into every industry.”
Nvidia alone accounted for more than a fifth of all of the S&P 500 index’s total return last year.
Buy an S&P 500 index fund today, and nearly 6 cents out of every $1 will go only into Nvidia. DeepSeek and its seemingly lower-cost operations raised worries about whether companies would need to spend as many dollars on Nvidia chips as previously thought. The concerns dragged down stocks across the AI industry.
Some on Wall Street saw Monday’s nearly 17% plunge for Nvidia’s stock as an opportunity rather than a signal of pending doom. If AI does become cheaper to run, it could open the door to new kinds of customers and software innovations that could ultimately help the industry in the long term. Brian Colello, strategist at Morningstar, believes that AI GPU demand still exceeds supply.
“While slimmer models may enable greater development for the same number of chips, we still think tech firms will continue to buy all the GPUs they can as part of this AI ‘gold rush,'” he wrote in a report. Nvidia’s stock wobbled between gains and losses early Tuesday following its worst plunge since the 2020 COVID crash, and then rallied a bit and ended the day nearly 9% higher.
