How DeepSeek Caused the Biggest Dip in the Chip Stocks and GPU Market?

The AI revolution is upon us, and it is fuelling a surge in demand for chips and GPUs. In November 2024, sales of semiconductors reached $57.8 billion worldwide, with sales in the Americas rising to 54.9% year-over-year. During this expansion, DeepSeek has emerged as a significant player. It is impacting the chip stocks and raising concerns about the future demand for high-end semiconductors.

The influence of DeepSeek on the chip market is analysed in this blog, particularly its effect on GPU demand and investment implications.

What is DeepSeek?

DeepSeek is an AI research company based in China. Because of its developments in AI model creation, it has quickly gained popularity. DeepSeek was established in July 2023 to create artificial general intelligence (AGI). Large language models introduced by DeepSeek are giving tough competition to existing market leaders like ChatGPT and Meta.

Now, the question arises which is better DeepSeek or ChatGPT?

DeepSeek’s Impact on Chip Demand

The advancements in DeepSeek are raising questions about future demand for high-end semiconductors. Using fewer resources, the company has created better AI models. This shift is generating conjecture and doubts about the necessity of compute-intensive AI models that depend on costly chips.

DeepSeek’s models perform well with lower-cost infrastructure, challenging Nvidia’s dominance in the high-end AI chip market.

On January 27, 2025, DeepSeek launched a feature predicting stock movements, supply chain bottlenecks, and consumer behaviour. Following this launch, U.S. tech stocks lost $500 billion in value, and global markets experienced a domino effect.

Nvidia’s stock fell 17%, causing the business to lose about $600 billion in market capitalisation—the largest decline ever for a US company.

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Companies that relied on Nvidia chips for their data centres have faced challenges due to this decline. Additionally, data warehouse companies such as Dell, Oracle, and Super Micro Computer experienced drops of at least 8.7%. Concerns regarding increased competition from the Chinese AI lab, DeepSeek, sparked this sell-off.

Raymond James noted that “DeepSeek’s emergence could disrupt the demand for compute-intensive AI models.” This AI model can also impact US companies to reduce their capital spending by designing AI systems that rely on cheaper chips.

Swift Transition in the GPU Market

Graphics Processing Units (GPUs) are essential to DeepSeek’s deep learning and technology. LLMs like OpenAI’s ChatGPT, require these for training and operation. However, DeepSeek has shaken the market with its ability to produce competitive AI models without depending on Nvidia’s expensive CPUs.

DeepSeek’s focus on efficiency reflects that AI development doesn’t need to be as resource-intensive as once believed. As a result, investors are now re-evaluating whether large-scale GPU investments are still essential.

High Bandwidth Memory (HBM) providers have also been impacted by the rise of DeepSeek. This Chinese company showed that heavy optimisation can yield results beyond expectations, even with less powerful technology and lower memory bandwidth.

Investment Implications

The impact of DeepSeek on the chip and GPU markets could have significant implications on investments, including:

• For investors in the semiconductor sector, the growing need for specialised chips may provide exciting opportunities.
• Rather than growing capital-intensive GPU clusters, investors should look for businesses that are investing in energy-efficient technologies.
• Businesses that use decentralised GPU clouds might be at a competitive advantage.
• DeepSeek’s success is expected to create USA-China tech tensions. Investors should keep an eye on policy changes and stricter export regulations.

DeepSeek’s contributions to the AI and hardware industry are undeniable. Its ability to develop competitive AI models with fewer resources has disrupted the chip and GPU markets. This is leading to a re-evaluation of investment strategies in the semiconductor industry.

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