Nvidia Drops 17%: Is DeepSeek’s AI the Catalyst, or Is Wall Street Masking a Bigger Problem?

 

When Nvidia’s stock nosedived by 17% on January 27, 2025, the market quickly pointed fingers at DeepSeek, a Chinese AI startup that unveiled a groundbreaking model on January 20. But was DeepSeek’s announcement the real culprit, or are we witnessing a classic market play—using a convenient narrative to mask something much larger?

Nvidia Price end of January 20, 2025: 140 approx  

• DeepSeek model was released on January 20,2025

•  Nvidia Price end of January 20, 2025: 140 approx  
• Trump announced Project Stargate on January 22, 2025
•        Nvidia Price end of January 22, 2025: 147 approx  
•  Markets reacted on January 27, 2025, and Nvidia slides down by 17%
•  Nvidia Price end of January 27, 2025: 118.58

 So the price since the announcement by DeepSeek from 20^th January to 24^th January the price either rose or kind of stayed same level –

 

Now the benchmarks were released by Deepseek on January 20^th , 2025 only , that I can support by using this link - https://web.archive.org/web/20250122193139/https://www.deepseek.com/

So the Question arise here is did Deepseek actually caused the crash for Nvidia or it is being used as a smoke screen to hide some other turbulence in the market

What Could Be the Smoke Screen?

The delayed reaction and broader context suggest the possibility of Nvidia’s sell-off serving as a convenient distraction—or even a tool—for larger market forces at play.

1. Profit-Taking in Overvalued Tech Stocks

·    Nvidia’s valuation had reached sky-high levels due to its central role in the AI boom, making it an attractive target for profit-taking. By January 20, Nvidia was trading at over 50 times its projected earnings—a lofty valuation in any market environment.

·     Institutional investors, who hold the bulk of Nvidia shares, might have used the DeepSeek announcement as a narrative excuse to offload their positions.

·    The sudden drop could also reflect broader rebalancing into safer assets (e.g., bonds), especially ahead of potentially unfavorable economic developments.

2. Upcoming FOMC Meeting and Interest Rates

·      The Federal Reserve’s upcoming meeting at the time added uncertainty to the markets. If investors expected the Fed to signal tighter monetary policy or higher interest rates, this would make high-growth, high-valuation stocks like Nvidia particularly vulnerable.

·     The steep decline in Nvidia’s stock could be a way for "smart money" to prepare for a less favorable monetary policy environment by reallocating to cash or bonds.

3. Bond Market Turbulence

·      Treasury yields saw significant fluctuations in January, reflecting growing uncertainty. While yields dropped slightly leading up to January 27 (indicating risk aversion), the broader trend pointed to market concerns about liquidity and credit conditions.

·       Nvidia’s crash could be a signal of stress within the broader tech sector, which is heavily reliant on cheap capital to sustain growth.

4. Geopolitical and Competitive Pressures

·      DeepSeek’s emergence represents not just a competitive threat but also a geopolitical one. The U.S. and China are locked in an ongoing tech race, and the rise of Chinese AI companies could have strategic implications for U.S. firms like Nvidia.

·     The sell-off may reflect growing investor concerns about U.S. export restrictions on chips and potential retaliation from China, both of which could impact Nvidia’s future earnings.

5. Strategic Market Manipulation

·       Large institutional investors and hedge funds may have seized on the narrative of DeepSeek’s announcement to justify broader repositioning.

·   A well-timed sell-off could serve multiple purposes: suppressing Nvidia’s price temporarily to allow cheaper reentry or shifting sentiment across the AI sector for strategic reasons.

DeepSeek’s announcement undoubtedly added pressure on Nvidia’s stock, but it’s hard to ignore the broader market context. Was this crash really about competition in AI, or was it the perfect storm of profit-taking, macroeconomic uncertainty, and investor repositioning? In the ever-complex world of financial markets, the answer may lie in the interplay of both narratives.

Would you like to expand on specific data points or tie this analysis to broader themes like AI competition or market manipulation?

Stay figgy,

The Figured Figs Team 🌱

Disclaimer: “This article is for informational purposes only and does not constitute financial, investment, legal, or tax advice. Readers are encouraged to consult a licensed professional before making any financial decisions."