Today, while reading newspapers with his morning tea, Papa asked me what is this recent Chips and AI drama going on with DeepSeek and Nvidia. Scratching my head, “DeepSeek is a new ChatGPT with a fraction of its cost, Papa! but I don’t know how Nvidia comes into the picture.”
Economics teaches us that the answer lies in the second-order effects. This would be my shortest blog, where we will peel one layer of this onion to find our answer.
WHAT HAPPENED TO NVIDIA IN A SINGLE DAY THAT IT’S STOCK FELL BY $600 BILLION?
Stock markets function on mine and your perception of tomorrow. COVID came, the world seemed uncertain, the market fell. Similarly, here we need to get the answer to the question, “What made the future of Nvidia seem less prosperous (profitable) than it was?”
Nvidia is a technology company that makes chips, systems, and software that power things like artificial intelligence (AI), gaming, and graphics.
What is a semiconductor chip, and why is it the most valuable thing on the planet?
A semiconductor chip is a tiny piece of material (usually silicon) that helps control electricity in electronic devices. It works like a brain for gadgets, making things like computers, smartphones, cars, and even washing machines smarter.
Why is it so valuable?
1. Runs Everything – Almost every modern device, from phones to airplanes, needs chips to function.
2. Hard to Make – Manufacturing chips requires billion-dollar factories, extreme precision, and advanced technology.
3. Powering AI & Innovation – Artificial intelligence, automation, and new technology depend on faster and better chips.
4. Geopolitical Importance – Countries compete to control chip production because it affects economic power and national security.
5. Limited Suppliers – Only a few companies in the world (like TSMC, Intel, and Samsung) can make the most advanced chips.
Without semiconductor chips, modern life would stop – no internet, no smartphones, no smart cars, and no advanced medical devices. That’s why they are among the most valuable things on the planet!
The above answer is given by ChatGPT, an AI generative model developed using a massive amount of semiconductor chips.
What is DeepSeek, and why is it unique and one of its kind?
I learned about DeepSeek 9 days ago from Tyler Cowen’s blog post at Marginal Revolution blog. It is another AI generative model that answers whatever comes to your mind, does reasoning well enough, and also has a creative muscle.the questions of your mind. It is unique because it takes time, thinks about the question by first principles, and then gives reasoning answers.
Some interesting comments about DeepSeek!!
Here’s my own experience:
“Enough of the context, Jeet. ANSWER THE DAMN QUESTION:” You must be thinking this right now.
Okay, let me join all the dots I have just spread in front of you.
Nvidia makes semiconductor chips and enjoys an almost monopoly status.
Until the launch of DeepSeek, everybody thought that you needed a large amount of chips. But when this Chinese company developed a smart enough model at a fraction of the price by using a fraction of the chips that USA companies used, the world realized that we could make such generative models without so many chips.
Existing US companies’ investment:- $250 billion
DeepSeek’s investment:- $6 million.
Hence, the future requirement for chips would be less, and thus, the profitability of Nvidia would be less. Here’s the answer to why the stocks were down.
I tried to make the above explanation easy enough, but if it can be simplified more, then why not?
Here is an Indian American techie, Anjali Virangama’s Instagram reel. She breaks it down so that even a 5-year-old kid can understand it; just give this reel a watch.
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Hi Jeet. Nicely summarised. But I felt that adding the reel was not required. Essentially, the reel gives the same information as you have already put forth in your article.