March 4, 2025 - 1:00pm
Nvidia’s share price is under pressure once more, falling 9% in trading yesterday ahead of Donald Trump’s tariffs coming into effect today. The stock has dropped over 12% in the past week and has shed its impressive $3 trillion market cap, with the tech company now valued at $2.79 trillion.
It is difficult to see how far Trump’s tariffs, which for now are mainly targeted at Mexico and Canada, would affect the chip producer. It seems more likely that a lack of confidence in Nvidia itself is driving the decline, and that traders are sending the value of the stock down on days when the broader market declines. Yesterday, when Nvidia dropped by 9%, the overall NASDAQ index lost around 2.6%.
Since the release of DeepSeek led to initial declines in Nvidia’s valuation, there has been an ongoing debate about the importance of the Chinese company and what it means for the broader AI market. Elon Musk has weighed in, stating that while DeepSeek’s performance is impressive, American AI programmes would soon beat it. While this may be true, it raises questions about whether these new developments might not have been helped along by DeepSeek, which is open-source.
More importantly, Musk claims not to believe the DeepSeek team when they say that they trained the programme on a much smaller number of chips than is normal in AI. If DeepSeek is telling the truth, Nvidia’s future revenues will probably suffer as AI developers are required to buy fewer chips than expected. But it is hard not to view Musk’s comments in light of the fact that the release of DeepSeek has reportedly lost the tycoon around $90 billion.
The Trump administration and other US-aligned governments appear to be running with Musk’s interpretation. If the Tesla boss is correct, the Chinese skirted export bans on Nvidia chips, used a large number to develop DeepSeek, and then lied about how many semiconductors were required to cover their tracks. Soon after the DeepSeek release, Singaporean police arrested three men accused of engaging in fraud to smuggle Nvidia chips into China. At the end of last week, the Wall Street Journal ran an article making similar accusations against domestic Chinese firms.
Beijing is evidently swerving export regulations on Western technology, and the fact that this is so easy to accomplish raises serious questions about the purpose of the restrictions. If they are not working, they are only enriching middlemen and encouraging criminal enterprise. But just because China is importing Nvidia chips via the black market does not mean that DeepSeek researchers are lying about the quality of their product.
More broadly, the DeepSeek saga raised the uncomfortable possibility that investors were factoring in very modest efficiency gains when dealing with the economisation of chips in AI development. Even if the Chinese have not broken through an efficiency barrier with DeepSeek, it is still likely that at some point the technology will improve. It will be worth watching the stock price of Nvidia in the coming months to see how markets process this debate, as the ramifications are sure to be huge for Silicon Valley and the global tech industry.
Philip Pilkington is a macroeconomist and investment professional, and the author of The Reformation in Economics
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SubscribeIt’s hard to know what to make of DeepSeek.
Since it’s open source, any optimisations it makes can be adopted by the US tech giants.
There’s no obvious natural limit to demand for machine learning processing power. If they can do more with a given number of chips, they’ll do more.
Opportunities for AI are so great that leaders in this field will keep buying chips until there’s nothing left of the old economy for them to devour.
A lot of emphasis is being placed upon Musk’s information sources. Perhaps with justification. But this man is running several different companies, DOGE, involving himslef in both domestic and foreign politics. Is he focussed enough to know what a Chinese company is doing ? In Europe the Tesla ‘swasticar’ sales are in freefall, Gerald Ratner may have met his match.
The DeepSeek team indeed made breakthroughs, a fact that can be verified by study of their work, since they made it open source. But so far it’s clear smart analysts have concluded that the DeepSeek breakthroughs are not really a problem for Nvidia’s sales prospects.
What’s mainly weighing on the stock price are two things: 1) the question of whether the Trump Admin. is going to impose tariffs on Taiwan; 2) the question of how long the big tech firms will continue buying Nvidia chips at a rate faster than TSMC can produce them.
As for 1), I’m more convinced that Trump will be lenient now that TSMC has agreed to massively up its investment in the US. As for 2), who knows?
Nvidia stock price will keep being volatile, but they still hold the #1 position. By a long shot.
Will AI keep expanding? If the answer is yes, Nvidia is in a very very good position.