​Nvidia Stock Drop and What it Could Means for the Rest of the Magnificent 7

January 30th, 2025

Luis Arias-Argueta, University of Southern California

On January 27th, Nvidia lost nearly $600 billion in market cap due to a massive panic sell-off of shares after news that an open-source language model, DeepSeek R-1, was released by a rival Chinese AI LAB, also named DeepSeek, as an alternative to ChatGPT-4 and OpenAI. However, the reason for this dip in investor confidence, despite what should have been good news for Nvidia, as a rising AI firm like DeepSeek would presumably drive GPU sale, was not necessarily the emergence of a competitor, but rather concern over the specific model of Nvidia GPU used to train DeepSeek’s AI model.

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In this case, DeepSeek’s launch used Nvidia’s H800 GPU, a model released two years ago, rather than the newer and partially released GeForce RTX 40 series, into which Nvidia has invested 12.9 billion so far. Complicating matters further, in March of this year, President Donald Trump is set to impose additional export restrictions on China, a market that accounted for 20% of total sales in the 2024 fiscal year, but that is so far now expected to be down to 13%,  marking an estimated 7% decline for 2025. This estimate stems from Nvidia’s limited ability to sell its more advanced chips, such as the RTX 4090, to Chinese firms that are heavily dependent on new technology for their own AI advancements.

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NVIDIA Stock Price since 2023

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​The above chart shows Nvidia’s stock price surge since January 2023, fueled by AI-driven demand, followed by a sharp drop on January 27, 2025, amid renewed concerns over competition and GPU relevance.

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Although the use of already available GPUs may not seem like a major issue to the general public, in a market that’s heavily reliant on cutting-edge GPUs, it raised eyebrows. The fact that DeepSeek was able to enter the AI space with a high-performing model, without using Nvidia’s latest technology, wasn’t a good look for Nvidia or its investors as it suggests that lower-performing GPUs could still be leveraged effectively, potentially undermining demand for the company’s most advanced products.

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This realization led many Nvidia investors, especially those betting on further AI development, to reconsider the value of their holdings. The stock closed at $118.58, a 17% drop from its opening price on January 27th of 2025. But the shockwaves didn’t stop there. The rest of the "Magnificent 7": Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla, also felt the blow, given their deep investments in AI and their reliance on Nvidia's chips.

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It's safe to assume that the rest of the Magnificent 7 began to suffer stock drops due to the pre-market panic triggered by DeepSeek’s use of cost-effective Nvidia chips. Each of the six companies saw their stock prices fall by at least 5% from the beginning of 2025, with an estimated combined loss of $1 trillion across each company. The mass selling of stocks held pre-market stems from the reasoning that research of AI technology and models may be at a standstill due to cheaper GPU’s running advanced AI models in China since most are restricted in obtaining newer models.

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As such, public trust in the Magnificent 7 took a serious hit, and these companies now face growing pressure from consumers and the risk of losing investors. As of February 26th, there are still no signs of recovery in stock prices due to increased scrutiny for current and future projects causing these companies to tread cautiously, wary of losing more funding or further damaging their reputations.

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Their earnings outlook remains uncertain, especially if funding for AI advancements continues to be scaled back. This could force many to abandon smaller AI initiatives and redirect focus to core product lines in hopes of restoring investor confidence. But perhaps this downturn will serve as a wake-up call—a moment for these giants to prove why they rose to prominence in the first place. In the darkest times, growth is often forged. For the Magnificent 7, stagnation is no longer an option.

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