Tae Kim

Nvidia CEO Jensen Huang disagrees with the initial negative investor reaction to DeepSeek. He believes the Chinese startup's innovations will lead to greater demand for artificial-intelligence hardware, not less.

Huang said on an interview with DDN CEO Alex Bouzari published Thursday that DeepSeek's reasoning feature, which allows the AI model to reflect more thoroughly on potential answers by performing numerous thought computations before arriving at a higher-quality response, will drive increased demand for computing capacity.

"Reasoning is a fairly compute intensive part. The market responded to [DeepSeek] R1 as in 'Oh my gosh, AI is finished. It dropped out of the sky, we don't need to do any computing anymore.' It's exactly the opposite," Huang said, adding the need for more computing is "intensive."

Last month, excitement over the efficiency of DeepSeek's recent AI models, including R1, sparked a wave of market volatility, raising questions about the implications for AI companies. Nvidia shares dropped 17% in a single trading session.

The executive explained that the latest AI model techniques for inference -- the process of generating results from AI models -- will consume more computing power in the future.

"From an investor perspective, there was a mental model that the world was pre-training and then inference," said Huang. "Inference was you ask an AI a question, and it instantly gives you an answer. One-shot answer. I don't know whose fault it is, but obviously that paradigm is wrong."

Big Tech earnings have helped ease worries over DeepSeek's new AI models, with Nvidia stock recovering most of its losses. In recent weeks, Microsoft, Google parent Alphabet, Meta Platforms, and Amazon.com announced plans to dramatically increase their 2025 capital expenditure raising the forecast to a total of $335 billion -- 16% higher than Wall Street expected before the earnings season.

Huang is also optimistic that DeepSeek will lead to a more widespread use of AI technology. DeepSeek "is so incredibly exciting [with] the energy around the world as a result of R1 becoming open-sourced," he said.

DeepSeek is open source, which means companies and consumers can use the model without paying for it.

Write to Tae Kim at tae.kim@barrons.com

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February 21, 2025 11:26 ET (16:26 GMT)

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