Ashwath Damodaran, a prominent voice in the financial valuation space, cast doubt on the notion that DeepSeek’s entry into the AI landscape would enhance Nvidia’s value proposition in a blog post late Friday.
Nvidia valuation projections drop: According to Damodaran’s analysis, the introduction of DeepSeek — an AI upstart that has shot to fame for developing the technology on the cheap — may actually depress Nvidia’s expected dominance in the AI chip market.
While Nvidia has been a significant player due to its first-mover advantage and a substantial share in the AI chip market — valued at an estimated $500 billion by 2035 pre-DeepSeek, Damodaran now projects this market at $300 billion in the next decade.
Damodaran grounds his argument in a reality check; the rise of DeepSeek presents a cheaper, competitive pathway to AI product development.
DeepSeek achieved cost efficiencies by using less powerful infrastructure and smaller data pools, challenging the narrative of large-scale investments in supercomputing and data centers as essential.
By eschewing the high entry barriers typical of AI advancements, DeepSeek’s model poses a real threat to Nvidia and similar incumbents in the AI space. He emphasizes, “even the most well thought through narratives will change over time.”
There’s more to the story: Not all is rosy on DeepSeek’s end either.
Damodaran notes the political angle around the company. After all, it is born and brought up in China, the incumbent arch-nemesis of the U.S., where pretty much all of the top AI development had been happening so far.
“The notion that DeepSeek was developed for just a few million dollars is fantasy,” the NYU professor said.
“There may have been a portion of the development that cost little, the total was probably in the hundreds of millions of dollars and required a lot more resources (including perhaps even Nvidia chips) than the developers are letting on.”
Damodaran still acknowledges that the overall costs involved in DeepSeek model are still likely to be significantly lower than the ones involved in the likes of OpenAI or Grok.
Divided Opinions: Many of primary DeepSeek competitor OpenAI’s leaders have commented on its popularity.
CEO Sam Altman said DeepSeek’s R1 is an “impressive model,” given the price, but we would “obviously deliver much better models.”
OpenAI’s chief researcher Mark Chen remarked that the cost efficiencies around DeepSeek’s model are overblown.
Chen implied skepticism about broader market ramifications, and notes technicalities of cost reduction, while also acknowledging the model’s impressive emergence.
Nvidia has said that DeepSeek’s launch shows why the company’s chips would be more in demand than the other way around, even as the market seem unconvinced.
The company, alongside others like Perplexity, has also been rushing to incorporate DeepSeek into its services and marketing, with inclusion in NIM microservices and advertising how its RTX series of GPUs are great for developers to self-host the R1 model.
You can read Damodaran’s multi-page essay here. Disclaimer: Dzambhala founder holds Nvidia shares.
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