NVIDIA's share price moves past the 10-digit mark - should investors cash out promptly or consider exit?
When the SHTF: Is Nvidia's Stock Plunge the Catastrophic Event Investors Warned About?
Nvidia's stock took a nose-dive yesterday, dropping nearly 20%. The culprit? DeepSeek, the "Chinese ChatGPT," surpassed its US counterpart in popularity. Introduced on January 10, DeepSeek-V3 trumpets efficiency, utilizing less pricey chips and minimal data over its competitors. And herein lies the conundrum: Is this stock plummet a justified response or a fleeting concern?
Nvidia's Stock: The Tipping Point in AI's Gold Rush
Nvidia has been the crown jewel of the AI boom. As a key provider of the infrastructure required for AI to operate, Nvidia's high-performance chips have been a coveted commodity by Big Tech titans, attracted by the US government's export restrictions on high-performance chips to China. Yet, DeepSeek-V3's success with lesser-powered Nvidia chips could dampen the demand for pricier chips and complex data centers, threatening Nvidia's revenue growth.
Raymond James stated in a Monday note, "DeepSeek has obviously not as much computing power as US hyperscalers and still managed to develop a model that appears highly competitive."
Panic Sell or Golden Opportunity?
Investor anxiety about Nvidia's revenue prospects has led to a panicked sell-off. However, experts argue that the price drop represents an overreaction. Analysts from Bernstein Research quoted by "dpa" state, "The doomsday scenario currently circulating in the Twitterverse seems exaggerated." They contend that DeepSeek doesn't employ groundbreaking technologies, but instead adapts the tried-and-true Mixture-of-Experts architecture (MoE) widely used in the AI sphere.
Nvidia remains well-valued, boasting a price-to-earnings ratio (P/E) of 49 (compared to a ten-year average of 31). Despite concerns, business numbers have remained robust. For the fourth quarter ending January 31, 2025, analysts anticipate a revenue increase of over 70% and a 70% spike in earnings per share to $0.84.
Analysts like Bernstein and BNP Paribas have reaffirmed their optimistic price targets of $175 and $170, respectively, post-DeepSeek events.
Cool Heads Prevail
Despite the recent turbulence, Nvidia's business model remains relatively unscathed, and future growth prospects are promising, albeit with risks. This dip could represent an enticing entry point for those with a long-term view on Nvidia's growth potential.
So, should you sell like a madman or dive in headfirst? Honestly, it's your call, partner. Do your own research and make a move accordingly. Remember, Nvidia's invincibility won't last forever. This could be the ideal moment to seize the opportunity or cut your losses.
In any case, don't forget to read up on the DeepSeek juggernaut's ongoing impact on the AI universe, as well as any other dramatic events that might shake up the stock market.
Bonus Reads:
- DeepSeek: The End of AI's Hype or a New Investment Chance?
- AI Earthquake Sends Siemens Energy Stock Crashing: Is this -20% a New Lease on Life?
Disclaimer: Note that the majority shareholder of the publisher Börsenmedien AG, Mr. Bernd Förtsch, holds both direct and indirect positions in the financial instruments mentioned or related derivatives in this piece, which may benefit from the price movement following this publication. So, as always, caveat emptor!
The plunge in Nvidia's stock, despite being significant, could be a result of investors overreacting to the success of DeepSeek, a Chinese AI model that operates efficiently with less expensive chips and minimal data, compared to its US counterparts.
Nvidia's stock drop, despite fears of diminished demand for pricier chips and data centers, might present an intriguing opportunity for long-term investors, given the company's strong business fundamentals and promising growth prospects, as suggested by analysts like Bernstein and BNP Paribas.
