Amid Market Turbulence, Nvidia Faces Challenges from New AI Competitor
The capital markets have seen significant disruptions over the last few weeks. A Chinese startup named DeepSeek stirred concern among investors by claiming it developed advanced artificial intelligence (AI) applications at a fraction of the cost compared to U.S. companies. This controversy has caused technology stocks, including Nvidia, to experience declines.
Nvidia (NASDAQ: NVDA) is particularly affected by the DeepSeek claims. Investors are now eager to see if these developments will impact Nvidia’s performance when the company reports its fourth-quarter and full-year 2024 earnings on February 26.
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Tech Giants Counter DeepSeek’s Impact
The prevailing concern about Nvidia has been whether companies would reduce AI infrastructure spending in light of DeepSeek’s assertions. Should this occur, demand for Nvidia’s high-cost data center graphics processing units (GPUs) would likely diminish, raising questions about the company’s future growth.
Fortunately, Nvidia’s major partners, known as the “Magnificent Seven,” have released their earnings reports. Notably, these companies—Microsoft, Meta Platforms, Alphabet, and Amazon—have indicated that their capital expenditure (capex) budgets this year could exceed $300 billion if they invest at the upper end of their forecasts.
This spending pattern is vital because all these companies frequently rely on Nvidia products. Although they are also developing their own custom chips, it’s improbable they will fully shift away from Nvidia in the near future. As a result, the anticipated increase in AI infrastructure spending suggests strong prospects for Nvidia.
Image source: Getty Images.
Examining Nvidia’s Stock Following Earnings Reports
The chart below illustrates Nvidia’s stock performance over the past three years, highlighting the company’s earnings reports marked by purple circles labeled “E.”
NVDA data by YCharts
It’s evident from the trends that Nvidia’s stock typically increases following earnings reports. Although there may be some volatility as the earnings call approaches, Nvidia’s stock often shows resilience in the aftermath.
Is Now the Time to Buy Nvidia Stock?
Based on historical trends, the stock chart suggests that Nvidia’s stock may rise following the earnings announcement on February 26. Yet, informed investors recognize that past performance shouldn’t solely dictate current decisions.
The key takeaway is that Nvidia’s largest clients have reaffirmed their commitment to AI development, which is supported by substantial capex investments. In theory, this is a favorable sign for Nvidia’s future.
Given this context, there’s little reason to wait for a few more weeks to hear Nvidia’s thoughts on DeepSeek. The signals from major tech companies should provide valuable insight into Nvidia’s growth potential.
Therefore, I recommend considering a purchase of Nvidia stock now, ahead of the February earnings report. The recent market sell-off has created a unique opportunity, with Nvidia stock currently trading at a relatively low valuation that could present a buying opportunity.
Should You Invest $1,000 in Nvidia Today?
Before investing in Nvidia, take this into account:
The Motley Fool Stock Advisor team recently highlighted what they consider the 10 best stocks for investors right now, and Nvidia was not included in that list. The chosen stocks have the potential for significant returns in the coming years.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, serves on The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook, is also on the board. Suzanne Frey, an executive at Alphabet, is a board member as well. Adam Spatacco has investments in Alphabet, Amazon, Meta Platforms, Microsoft, and Nvidia. The Motley Fool holds positions in and recommends Alphabet, Amazon, Meta Platforms, Microsoft, and Nvidia, along with options trading on Microsoft. The Motley Fool adheres to a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
