Will DeepSeek's Artificial Intelligence Model Destroy Nvidia's Valuation?

Did DeepSeek's artificial intelligence (AI) model really cost less than $6 million to make? If that's the case, it makes you wonder what big tech plans to spend tens of billions of dollars on this year, not to mention the massive $500 billion Stargate project that President Trump announced last month.

DeepSeek's numbers may be grossly underestimated, however, with a recent report suggesting that the company may have spent well over $500 million just on its hardware. It'll inevitably take time before investors get a good grasp on just how concerning of a problem DeepSeek's AI development is or isn't for the tech sector.

In the meantime, one stock that's been declining on these developments is chipmaking giant and AI figurehead Nvidia (NASDAQ: NVDA). The stock has been synonymous with AI development, as its chips have been viewed as crucial for companies developing next-gen models. The news related to DeepSeek has already resulted in some sizable losses to Nvidia's market cap, but could this be just the start -- is more of a sell-off coming?

Why I wouldn't be too worried about the DeepSeek AI model

The best and brightest minds in tech work in the U.S., for top tech companies such as Nvidia, Microsoft, Apple, and other well-known names. To suggest a Chinese start-up company that launched in 2023 has put to shame some of the most successful and most valuable businesses in the world is just not a scenario I'd consider highly plausible.

Odds are, DeepSeek's costs to develop its AI model are significantly understated. After all, it's not as if investors have audited financial statements they can look at to assess the true costs. ChatGPT-maker OpenAI is also alleging that DeepSeek used its AI models in creating the new chatbot. "We are aware of and reviewing indications that DeepSeek may have inappropriately distilled our models." If DeepSeek did rely on OpenAI's model to help build its own chatbot, that would certainly help explain why it might cost a whole lot less and why it could achieve similar results.

For now, however, I wouldn't rush to assume that DeepSeek is simply much more efficient and that big tech has just been wasting billions of dollars.

This doesn't mean Nvidia's stock is out of the woods

If DeepSeek's AI model does indeed prove to be too good to be true and cost much more than the company said it did, it still may not necessarily lead to a significant rebound in Nvidia's valuation. What the news relating to DeepSeek has done is shined a light on AI-related spending and raised a valuable question of whether companies are being too aggressive in pursuing AI projects.

This could lead to companies reevaluating their tech needs and determining whether all that spending is justifiable. And a time when the threat of tariffs is weighing on the economy, it may be tempting for businesses to scale back their AI-related expenditures given the uncertainty ahead.

For Nvidia, a company that has soared in value due to its impressive growth, any slowdown in demand could make the chipmaker's stock vulnerable to more of a correction.

NVDA Operating Revenue (Quarterly YoY Growth) data by YCharts

Is Nvidia's stock still a good buy?

As of Monday, Nvidia's stock was down 12% to start the new year. And based on analyst projections, it's now trading at 28 times its future profits, which isn't all that expensive for a top tech company. But if those projections come down, then the stock's valuation won't look nearly as attractive as it does today.

However, if you're buying the stock for the long haul, it may not be a bad idea to load up on it today. The company's impressive profit margins, strong market position, and reduced valuation could make now an optimal time to add Nvidia's stock to your portfolio since it still has a bright future ahead.