Nvidia (NASDAQ: NVDA) stock saw a big valuation pullback in this week's trading. The graphics processing unit (GPU) leader's share price fell 15.8% from its level at the previous week's market close, according to data from S&P Global Market Intelligence.
Nvidia was hit with sell-offs this week as information surrounding the new R1 artificial intelligence (AI) model from DeepSeek signaled a potential paradigm shift in AI training and inference. In addition to the possibility that new approaches to AI software could mean lower demand for Nvidia's GPUs, the company's stock also saw pullbacks in conjunction with geopolitical and macroeconomic pressures.
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The market is weighing what DeepSeek means for Nvidia
Nvidia stock saw a massive pullback in Monday's trading, closing out the daily session down 17%. The sell-off worked out to a roughly $600 billion pullback in the GPU leader's market capitalization and marked the biggest-ever valuation pullback for a company on a pure-dollar basis.
The Monday sell-off for the stock was spurred by the market's reaction to a new AI model from DeepSeek -- a Chinese company. According to information from DeepSeek and other reports, its R1 model was matching or beating the performance of OpenAI's latest GPT model. At the same time, it reportedly took under $6 million to train -- far below the $100 million training figure for OpenAI's model. Strikingly, DeepSeek's model was said to be able to perform reasoning and inference applications with far lower processing and cooling requirements.
Nvidia's incredible valuation rise has been powered by the central role that its advanced GPUs play in training and running high-performance AI applications. If more efficient artificial intelligence models are able to deliver high levels of performance with lower processing needs, it could hurt demand for Nvidia's hardware.
Nvidia stock also fell due to geopolitical and macroeconomic factors
In addition to the immediate business-specific implications of DeepSeek's technology, Nvidia stock also lost ground in conjunction with broader geopolitical dynamics related to artificial intelligence. The R1 model highlighted the possibility that the U.S. is losing its lead over China in AI and the rising tensions between the two countries. Even if R1 winds up having a relatively minimal impact on Nvidia's business, the trajectory of relations between the U.S. and China could have a big impact on the company's valuation over the next five years.
Adding more bearish catalysts, Nvidia stock was pushed lower by macroeconomic catalysts on two fronts. For starters, the Federal Reserve said at its meeting this week that it would be keeping the benchmark interest rate at its current level. The central banking authority also gave some cautious commentary about the outlook for rate cuts this year and indicated that it was waiting to see the impacts of new economic policies before making any moves. Investors then got another bearish development late in the week's trading when the Trump administration announced that it would be rolling out new tariffs on China, Mexico, and Canada.
Nvidia continues to have a strong lead in the GPU market, but it looks like the stock could continue to be volatile in the near term. The company is scheduled to release its fourth-quarter results on Feb. 26, and the report is poised to be an important performance catalyst for the AI leader's valuation and the stock market at large.
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Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
