Will Chinese DeepSeek Disrupt NVIDIA? | Forexlive

The global AI race has taken an intriguing turn with the emergence of China’s DeepSeek, touted by some as a potential disruptor to NVIDIA’s dominance in the AI hardware space. As speculation swirls, stock investors, analysts, and thought leaders are left grappling with the critical question: Is DeepSeek a genuine threat to NVIDIA and the broader American AI industry, or is this a case of overhyped news amplified by interested parties?

The news that DeepSeek’s model surpassed OpenAI’s o1 in specific reasoning tests has sparked intense debate within the AI community. This development has significant implications for the AI market, potentially impacting the stock prices of companies like NVIDIA and other AI-related companies.

I’ll preface this by saying that I am not a renowned expert in deep technology or AI hardware. I don’t claim to have a definitive answer. Instead, I propose a method to find the answer—not by theorizing endlessly but by observing how the stock market reacts. The stock market, with its collective wisdom and ability to process information, often acts as the closest thing we have to a truth detector.

Let’s explore the context, evaluate the key factors at play, and develop a logical framework to assess the significance of DeepSeek’s emergence.

The Landscape: NVIDIA’s Moat vs. DeepSeek’s Promise

NVIDIA has long been the undisputed leader in AI hardware, leveraging its GPUs and CUDA software ecosystem to dominate the market. Its ecosystem is sticky—developers, hyperscalers, and enterprise clients are deeply entrenched in its platform, creating significant switching costs. This is not unlike Apple’s ecosystem, where loyal users and interconnected services create barriers to exit.

DeepSeek, on the other hand, reportedly offers a more cost-efficient AI solution. The analogy some have drawn is that DeepSeek could be the “cheaper smartphone” to NVIDIA’s “iPhone.” In the smartphone industry, the availability of cheaper alternatives has undeniably shifted market share, particularly in emerging markets. But did this disrupt Apple’s stock price or its dominance among its loyal user base? Not significantly. The same could apply to NVIDIA, depending on whether DeepSeek can replicate NVIDIA’s ecosystem or merely compete on price and performance.

The Role of Market Reactions: Finding the Answer in the Price

Here’s where the stock market comes in. Instead of relying solely on speculative opinions, I suggest that the best way to gauge the impact of DeepSeek is to observe NVIDIA’s stock price. The stock market is often a better truth-teller than any single analysis. It reflects collective sentiment, informed by analysts, insiders, and countless external factors.

What to Watch:

1. The Reaction to the News
   Since the DeepSeek news broke, NVIDIA’s stock has not shown any drastic reaction. It actually rose apx 2.5% after the news came out, if we look at NVDA stock price from the next day it traded, to the close of the week. This lack of significant movement, not to mention lack of stock price decline (crash…?) — suggests that the market does not yet see DeepSeek as a significant disruptor. If it were, we would expect a sharp and sustained price decline. Who remembers other cases, such as Facebook’s Cambridge Analytica scandal a few years ago and the immediate FB stock decline?

2. Earnings as a Catalyst
   NVIDIA’s upcoming earnings report will be pivotal. Pay close attention to management’s commentary, particularly regarding competitive risks in the AI space. If DeepSeek is a genuine threat, it could show up in NVIDIA’s guidance or performance, especially in its data center segment. I propose observing NVIDIA’s stock price from the time the news broke until two weeks after earnings. This period should provide enough data to assess whether DeepSeek is having a tangible impact, even if will not be talked about. The price knows, and it almost always knows better than you, or anyone else.

Interpreting the Price Action Post Upcoming Nvidia Earnings (Scheduled for 26 Feb 2025): What It Might Tell Us

Scenario 1 for the Upcoming Nvidia Earnings Report: Stock Rises or Remains Stable

If NVIDIA’s stock rises or stays within its current range, the market is likely signaling that DeepSeek is not a major disruptor. Perhaps NVIDIA’s ecosystem is too entrenched, or DeepSeek’s solution doesn’t offer enough differentiation. It’s also possible that other factors, such as AI demand growth or NVIDIA’s new Blackwell chips, outweigh any competitive threats.

Scenario 2 for the Upcoming Nvidia Earnings Report: Stock Declines

If NVIDIA’s stock declines, the reasons warrant closer examination. Is the drop due to bottlenecks in Blackwell chip deliveries, macroeconomic pressures, or broader market trends? Or does it reflect legitimate concerns about DeepSeek? Analysts will need to scrutinize earnings commentary, data center revenue trends, and any shifts in market share. It’s critical to avoid jumping to conclusions without understanding the underlying reasons for the decline.

The Unknowns: Factors and Their Weights

One of the challenges in analyzing stock movements is that we can never know all the factors affecting a stock price, nor the relative weights of those factors. We might think we know, we may hear great explanations, but we don’t exacly know. Earnings reports often illustrate this: a company might beat revenue and EPS estimates, yet the stock declines. Analysts scramble to explain why—was it slower sales growth, weaker guidance, or some other reason? The reality is that the stock market processes countless variables simultaneously, and not all of them are visible to us. The granular variables and their weights will never be known to us. But price knows.

The same principle applies here. Even if NVIDIA’s stock remains stable, it’s possible that DeepSeek is a growing threat but not yet significant enough to outweigh other factors. Conversely, if the stock declines, DeepSeek may not be the primary cause. This complexity is why I emphasize looking at the stock price holistically and over time, rather than rushing to judgment based on short-term moves.

Seeking the Deep Behind DeepSeek: Trust the Price, Not the News

DeepSeek’s potential to disrupt NVIDIA and the American AI industry is an open question, but the best way to find an answer is to let the stock market speak. Watch NVIDIA’s price action from the time the news broke until two weeks after its upcoming earnings. If the stock remains stable or rises, it’s likely that DeepSeek is not a significant threat. If it declines, dig deeper into the reasons—whether they’re related to DeepSeek or other factors.

While price action can act as a “truth detector,” it’s not infallible. The market may not immediately price in all information, and short-term movements can be influenced by noise, speculation, or interested parties (e.g., short sellers amplifying fears about DeepSeek). As always, exercise caution and remain open to multiple interpretations. But do follow the price more than anyone’s opinion, especially yours.

Ultimately, the price knows. Follow the money. Follow the price and you shall be closer to finding the truth.

So far, here is the most simple price chart of NVDA stock within the past 100 days. I don’t see any panic yet from the “truth machine”, do you? You can decide for yourself is you see any DeepSeek news related panic. But let’s wait till 2 weeks after the next earnings to unveal further “truth”.

Disclaimer: This article is for informational purposes only and should not be construed as investment advice. Always do your own research and consult with a professional before making investment decisions.