The Bullish Breakdown: DeepSeek vs. NVIDIA; The Golden Buying Opportunity

Summary:

1. NVIDIA is currently down almost 19% since January 23, 2025.

2. DeepSeek claims it was able to make a model better than ChatGPT for only 5% of the total costs.

3. Sources claim that high-powered NVIDIA chips were smuggled into China due to the strict US export laws.

4. Retail and institutional investors continue to load up on shares while they trade at this steep discount.

The Crash.

In the morning of January 27, 2025, news broke out that China had developed an AI model with less than 5% of the total costs used to create Chat GPT. What was even more astonishing at the time was that they did this while having access to limited low-powered NVIDIA chips.

As you can see based on the above image, the stock fell nearly 18% that day. This had wiped nearly $600bn worth of market cap for the company.

What is DeepSeek?

DeepSeek is a Chinese AI startup founded in 2023 by Liang Wenfeng, based in Hangzhou, Zhejiang, and backed by the High-Flyer hedge fund. The company aims to advance artificial general intelligence (AGI) through open-source R&D, with a focus on developing large language models (LLMs) that are competitive in performance and cost-efficiency. Its mission is to democratize AI for both commercial and academic use.

How much did it cost China to develop DeepSeek?

According to initial claims, DeepSeek R1 was trained for only $5-6m USD while OpenAI’s GPT models cost upwards of $100m USD.

The average output price for a response from DeepSeek is $2.19 per million tokens compared to GPT o1 which is $60 per million tokens. Therefore, right away we can see that it essentially costs far less to produce a response out of DeepSeek than it does out of GPT o1.

How did they get access to NVIDIA chips?

Due to U.S. export restrictions on advanced semiconductors, NVIDIA created a modified version of its A100 and H100 GPUs for the Chinese market. These versions are called the A8000 and H8000.

The modifications were made to comply with U.S. export laws, which limit the sale of certain high-performance chips to China due to national security concerns. The A8000 and H8000 chips have reduced performance compared to the original A100 and H100, specifically in terms of processing power, to ensure they do not meet the thresholds set by the U.S. government that would trigger the restrictions. These adjusted chips are still highly capable for AI and machine learning applications but are less advanced in terms of raw computational power.

This move allowed NVIDIA to continue supplying the Chinese market while staying within the bounds of international trade regulations.

There has been some buzz around whether or not DeepSeek had access to chips they shouldn’t have had in the first place. Many believe that the US export laws were ineffective from halting China in getting access to such high-powered chips like the A100 and H100. While some say they were smuggled through countries like Malaysia, Singapore, and the UAE.

The Golden Opportunity.

According to many Wall Street bulls, the current price point of $120 presents a golden buying opportunity for the stock. Have a look below to see what Dan Ives had to say about this situation:

We believe AI is still in its early stages, and currently, NVIDIA faces no significant competition in the U.S. market. Over the next 1-2 years, while competition may start to emerge, there’s no immediate risk to NVIDIA shareholders. As the leading provider of AI infrastructure, NVIDIA will likely remain the preferred choice for companies looking to implement AI solutions.

Disclaimer: The content provided here is for educational purposes only and should not be construed as financial, investment, or professional advice. All opinions expressed are based on personal insights and general market observations. Always conduct your own research and consult with a qualified financial advisor before making any investment decisions. We are not responsible for any actions taken based on the information provided.