Yesterday, NVIDIA saw over $500 billion erased from its market cap—a record-breaking loss. Today, it rebounded, regaining nearly $250 billion. This sequence of events represents the largest market cap swing in history. The question is: how did it happen? The answer lies in a story. Or, more precisely, a story or set of stories that attempt to change a narrative.

As many of you know by now, the sequence of events went something like this: a rumor surfaced that a new AI startup in China, DeepSeek, could rival even the likes of ChatGPT by training and producing top-tier AI models without needing as many chips. This ignited the imagination of traders and the media alike, who, ironically, have never studied AI in their lives. However, the market is always thirsting for a juicy story. Or, as they say, when the ducks quack, feed them. The markets have been quacking.

As it turns out, the firm has reportedly owned at least 10,000 NVIDIA chips since 2020—likely closer to 30,000 now—and clearly fabricated portions of its data. Adding to the intrigue, this “startup” also is the brain child of a hedge fund in China that is known to place short positions. Despite the questionable nature of these claims, media ran with the story, framing it as a potential “Sputnik moment” in the AI arms race.

Side note: The media loves a “race” narrative, yes in both senses of the word, whenever they get a chance.

For liquidity providers, market makers, and trading desks, a narrative isn’t just noise—it’s fuel. It’s an opportunity to trigger volatility, flush out over-leveraged positions, and create room to reload. This process is critical, especially with potential regulatory changes or tax incentives on the horizon that could bolster the bull case for equities. These firms must be positioned to capitalize on the next wave, and a market shakeout helps them do exactly that.

Here’s the key: traders and liquidity providers don’t even need the story to be true. They just need it to pose a threat to the underlying narrative not being as certain as previously thought. In the short term, controlling the narrative is more valuable than adhering to fundamentals. DeepSeek became the excuse—an engine to move markets.

Whether or not this impacts NVIDIA’s fundamentals in the long term is irrelevant. In the short term, the story served its purpose, and those who wielded it now hold the reins. That’s the underlying less: Markets Love Narratives In The Short Term.