Nvidia (NVDA) is yet again in the spotlight, this time for the wrong reasons. After two years of blockbuster gains as the poster child of the artificial intelligence revolution, the company’s long-term prospects are being doubted. Its stock was down by more than 10% on the confirmation that DeepSek has launched a free, open-source large language model.
Tech Implosion on DeepSeek
Developed in under two months for less than $6 million, the new open-source model raises questions about the need for more expensive chips or graphic processing units. The new model has already staked questions on the amount big tech companies need to invest to gain an edge on AI models and data centres.
According to reports, DeepSeek’s recently released AI model is more affordable and requires less sophisticated hardware than programs like OpenAI’s ChatGPT, according to Nigel Green, CEO of financial advisory firm deVere Group.
“Deepseek is going to challenge Silicon Valley’s leadership, disrupting the global tech landscape and reshaping the direction of the AI arms race,” Green said in emailed comments.
The recent events have sparked concerns about whether America’s dominance in artificial intelligence is waning globally and have called into question big tech’s enormous expenditures on developing data centres and AI models. DeepSeek’s model beat Meta’s Llama 3.1, OpenAI’s GPT-4o, and Anthropic’s Claude Sonnet 3.5 in a series of independent benchmark tests that measured accuracy in everything from math and coding to complex problem-solving.
Nvidia remains the biggest culprit as its valuations have exploded over the past two years on delivering blockbuster revenues and earnings due to strong demand for its expensive graphic processing unit. The prospect of a better and cheaper way of coming up with AI models appears to be threatening Nvidia’s core business, which is one of the reasons the stock imploded at the start of trading in the week.
Nvidia is not the only company taking a hit in the market. Amazon (AMZN), Microsoft (MSFT), and Meta are also under immense pressure. The companies have been the biggest beneficiaries of the AI-driven rally over the past two years. Their valuations have skyrocketed to record levels amid reports that they are well-positioned to benefit as they invest billions of dollars in enhancing and strengthening their product portfolio with AI.
Initial concerns are focused on whether the pricing power of the U.S. tech giants is being threatened and whether their enormous AI spending needs to be reevaluated, even though it is unclear if DeepSeek will ultimately prove to be a practical, less expensive alternative.
Meta Databricks Deal
Meanwhile, Meta Platforms (META) invests in data analytics firm Databricks to strengthen its edge in developing large language models. Meta doesn’t invest in nearly as many startups as its tech peers Alphabet and Microsoft. However, Databricks is a rapidly expanding business that is headed for a significant IPO.
Meta made one of the most significant venture capital investments in history in a $10 billion round for Databricks. Currently, Databricks has raised $14 billion in venture capital. The additional funds will be used for liquidity for both present and former workers as well as international expansion.
Meta is a key player in artificial intelligence since it trains the well-known Llama open-source large language models, or LLMs, on which Databricks builds. Databricks collaborates closely with the Llama team at Meta.
