By Adam Clark
Nvidia stock was falling again early Tuesday. It's the same old worry about big customers developing their own chips — but this time in China.
The shares were down 1.9% at $191.82 in early trading. If the move holds, it will leave the chip maker's stock at its lowest level since April.
An early fall deepened after Reuters reported that Chinese artificial-intelligence company DeepSeek was developing its own AI chip, which could leave it less dependent on Nvidia hardware, citing people familiar with the matter. The chip is designed for inference — running AI models — rather than training, according to Reuters.
DeepSeek didn't immediately respond to a request for comment from Barron's.
If confirmed, the move wouldn't come as a major surprise. U.S. companies such as Microsoft and Meta Platforms — which are major Nvidia customers — are increasingly turning to in-house chips in a search for cheaper AI infrastructure, as their cash flows are being eroded by heavy investment on data centers.
DeepSeek has an additional incentive to develop custom chips as it is blocked from accessing the latest Nvidia hardware by U.S. sanctions. More recently it has been using processors from China's Huawei Technologies.
Nvidia wouldn't necessarily lose a significant amount of business if DeepSeek uses its own inference chips, with China becoming a smaller and smaller proportion of its revenue. But the news is just another example of the competitive pressures Nvidia faces.
"Nvidia's pricing power may face greater competition than it has in recent years. This could make today's exceptionally high margins harder to sustain over the long term, even as the company expands into new business lines," wrote ING strategist Jan Frederik Slijkerman in a research note on Tuesday.
Write to Adam Clark at adam.clark@barrons.com
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