NVIDIA Corporation

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Somewhat Bearish -45

Nvidia stock remains under pressure on Tuesday: what's hurting the AI darling?

AI-generated analysis

📉 Nvidia stock dropped 1.9% to $191.82 in early trading after reports that Chinese AI startup DeepSeek is developing its own inference chip.

🇨🇳 The initiative aims to reduce reliance on external suppliers like Nvidia and Huawei, with the project reportedly starting about a year ago.

💻 DeepSeek has previously used Nvidia H800 processors for training but has increasingly turned to Huawei hardware following US export restrictions.

🔄 Major AI firms including Microsoft, Meta, OpenAI, and Anthropic are also developing custom chips to lower infrastructure costs and gain control over computing.

⚠️ Investors fear the market may reprice Nvidia from a 'default supplier' to just one option as customers build custom silicon ecosystems.

📊 China's contribution to Nvidia revenue has shrunk due to export controls, though this strategic shift still signals competitive pressure.

🤝 OpenAI recently unveiled Jalapeño, its first custom inference chip developed with Broadcom, signaling a broader industry trend away from sole reliance on Nvidia.

🔍 Reuters cited people familiar with the matter regarding DeepSeek's efforts, noting discussions with foundries and memory suppliers are ongoing.

📈 If DeepSeek's chip fails to scale or perform, Nvidia could retain its dominant position and allow the stock to rebound on fundamentals.

🏢 The trend of custom silicon development is driven by a desire for greater control over computing infrastructure and reduced costs associated with expanding data centers.

Bullish Signals
  • DeepSeek has previously relied on Nvidia H800 processors for training, indicating continued demand for Nvidia hardware in the Chinese market despite export restrictions.
  • If DeepSeek's new inference chip fails to reach meaningful scale or performance, customers will likely continue buying Nvidia hardware, allowing the stock to rebound on fundamentals.
  • The broader trend of custom silicon development is driven by a desire for greater control over computing infrastructure and reduced costs associated with expanding data centers, which could eventually benefit Nvidia if it remains the preferred partner for custom designs.
Risk Factors
  • Nvidia shares fell 1.9% to $191.82 in early trading after reports that DeepSeek is developing its own inference chip, adding to investor concerns about dependence.
  • The market is repricing Nvidia from a 'default supplier' to just one option as major AI customers increasingly look to reduce their reliance on Nvidia's hardware.
  • DeepSeek's initiative aims to reduce reliance on external suppliers like Nvidia and Huawei, which could erode Nvidia's market share in the inference segment if successful.
  • The trend of large AI developers seeking greater control over computing infrastructure by designing custom silicon tailored to their own workloads poses a long-term strategic threat to Nvidia's dominance.
Full Analysis
Nvidia (NVDA) shares fell 1.9% to $191.82 in early trading on Tuesday, marking a potential low since April following reports that Chinese AI startup DeepSeek is developing its own inference chip. The news reinforces investor concerns that major AI customers are increasingly seeking to reduce dependence on Nvidia's hardware by building custom silicon solutions. The reported initiative at DeepSeek began approximately a year ago and involves discussions with various chip-design companies, foundries, and memory suppliers. While the processor is specifically designed for inference rather than training, its potential success would allow DeepSeek to further reduce reliance on external suppliers like Nvidia and Huawei Technologies, which have been used for both training and deployment. This development occurs within a broader trend where large AI developers, including Microsoft, Meta, OpenAI, and Anthropic, are investing in custom chips to lower infrastructure costs. Although China's contribution to Nvidia's revenue has diminished due to export restrictions, the shift toward proprietary hardware signals mounting competitive pressure that could reprice Nvidia from a 'default supplier' to just one option among many. Analysts note that while the immediate financial impact on Nvidia may be limited given its reduced exposure to the Chinese market, the strategic implication is significant. The market is reacting to the narrative of shifting dominance in the AI chip sector, even if DeepSeek's specific project remains in early stages and faces execution risks regarding scale and performance.