DeepSeek Challenges Nvidia: Could This Be a Turning Point?

Nvidia (NASDAQ: NVDA) saw a nearly 5% stock surge today, but concerns remain about its long-term position in the AI industry. China’s DeepSeek, a new AI model, has emerged as a major competitor, offering similar performance at a much lower cost.

Top analyst Gil Luria from D.A. Davidson believes DeepSeek could reshape the AI market. He suggests that AI efficiency has dramatically improved in recent weeks, with DeepSeek reducing computing costs by as much as 90-97%. If true, this could significantly impact Nvidia, which dominates the AI chip market.

“We believe we are approaching peak demand, possibly as early as this year,” Luria warned, adding that Nvidia’s biggest customers may start exploring alternatives.

Some critics argue that DeepSeek’s claims are exaggerated. However, several AI experts, including Anthropic’s founder, have reported significant improvements in inference efficiency. One AI company even claimed a 93% reduction in computing power using DeepSeek.

Another debate surrounds DeepSeek’s low pricing—just $2 per million tokens—compared to OpenAI’s latest $4 per million. Some suggest China is undercutting the market at a loss, but Luria believes DeepSeek’s efficiency makes these prices realistic.

Questions also remain about DeepSeek’s training costs. While some say the reported $6 million figure is unrealistic, Luria estimates DeepSeek’s total spending at around $500 million—still far lower than OpenAI’s $10 billion investment.

The Jevons Paradox has been widely discussed in this debate. It suggests that as AI becomes cheaper, demand will rise. However, Luria argues that while AI tools will be deployed faster, demand may not grow quickly enough to counteract the reduced need for computing power.

Luria currently rates Nvidia stock as Neutral, predicting an 8% increase over the next year. However, most Wall Street analysts remain bullish, with a Strong Buy consensus and an average price target suggesting a potential 43% rise.

As the AI industry evolves, Nvidia faces increasing pressure to stay ahead. Whether DeepSeek is truly a game-changer remains to be seen, but its impact is already being felt in the market.