Nvidia Faces New Challenges Amid Rising AI Competition
Summary: As Nvidia sees stock fluctuations after a rival’s breakthrough in AI, experts assess its long-term investment potential.
Perhaps no stock exemplified the past year’s artificial intelligence (AI) frenzy more than Nvidia (NASDAQ: NVDA). The semiconductor chipmaker’s business benefited as tech companies spent billions of dollars to buy its AI offerings. Shares of Nvidia were up nearly 90% over the past 12 months through the end of January.
However, when Chinese start-up DeepSeek announced on Jan. 27 that it produced a large language model (LLM) for less than $6 million—far less than U.S. companies typically spend—Nvidia shares fell by 17%. Although the stock has since recovered, it remains below the 52-week high of $153.13 reached on Jan. 7.
Is DeepSeek a Real Threat to Nvidia?
DeepSeek’s low-cost AI technology raised questions about Nvidia’s future business. If DeepSeek could create powerful AI solutions cheaply, it could signal a shift away from Nvidia’s traditionally high-priced products.
Yet, it is unlikely that DeepSeek will heavily impact Nvidia for several reasons. One possibility is that DeepSeek may have utilized restricted advanced AI chips, an area currently under investigation by the U.S. Commerce Department.
Furthermore, OpenAI, the creator of ChatGPT, has accused DeepSeek of improperly using their data to develop its software. Given that AI requires vast datasets, if DeepSeek did utilize OpenAI’s content inappropriately, it suggests that others may not easily replicate LLMs at a low cost.
Additionally, the ongoing U.S.-China rivalry adds layers of complexity. This competition has led to export restrictions on AI chips to China. Given DeepSeek’s emergence, further restrictions could limit other Chinese firms from developing affordable LLMs.
There’s also the potential for bans on DeepSeek. The company’s technology is already restricted by federal agencies, including the U.S. Navy and NASA. Given past legislative actions, including the ban on TikTok due to privacy and security concerns, it seems conceivable that DeepSeek could face similar actions by various nations.
Nvidia’s Strong Position in the Market
In light of these factors, Nvidia is poised to benefit from substantial AI infrastructure investments under Trump’s Stargate project, which plans to inject up to half a trillion dollars into the sector. Nvidia is collaborating on this initiative.
Recently, Nvidia CEO Jensen Huang met with Trump to discuss AI policy, underscoring the company’s influence in shaping U.S. AI strategy. Nvidia is already recognized as a leader in the AI chip market.
In the fiscal third quarter ending October 27, 2024, the company reported a record revenue of $35.1 billion, reflecting a staggering 94% increase year over year. Nvidia’s net income for that quarter reached $19.3 billion, a 109% rise from the previous year. Its total assets amounted to $96 billion—including $38.5 billion in cash—far surpassing total liabilities of $30 billion.
Nvidia’s latest computing architecture, Blackwell, is thriving, as CFO Colette Kress indicated that revenues from it are set to exceed prior projections.
Nvidia is also involved in various industries, including robotics, personal computers, gaming consoles, and automotive sectors—further diversifying its business and potential for expansion.
Should You Buy Nvidia Stock?
Given its strong financial performance and wide-ranging applications for its chips, Nvidia emerges as a promising long-term investment in AI. With its current stock valuation, this might be an opportune moment to consider purchasing shares.
This assessment is reflected in Nvidia’s price-to-earnings (P/E) ratio, an important indicator for investors looking to understand stock pricing relative to earnings.
Data by YCharts.
Nvidia’s P/E multiple is currently at the lower end of its historical range, suggesting that shares are reasonably valued compared to the past.
Considering both the strong business fundamentals and stock valuation, acquiring shares ahead of the upcoming fiscal Q4 earnings report on Feb. 26 appears favorable.
Investment Considerations for Nvidia
Before investing in Nvidia, it’s worth noting some analysts’ opinions. The Motley Fool Stock Advisor team recently listed what they consider the 10 best stocks to buy now, and Nvidia was not among them. The selected stocks could yield significant returns in the coming years.
Reflecting on historical investments, had you invested $1,000 in Nvidia when it first appeared on the list in April 2005, it would now be worth an astonishing $735,852!*
Stock Advisor offers a straightforward guide for investors, complete with portfolio-building strategies, regular updates, and new stock picks monthly. Since 2002, its guidance has reportedly outperformed the S&P 500’s returns.
Further Insights »
*Stock Advisor returns as of February 3, 2025.
Robert Izquierdo has positions in Nvidia. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.
