Market Analysis: Nvidia’s Future Under Scrutiny as Valuation Expert Projects Drop

Aswath Damodaran, a noted professor at New York University’s Stern School of Business, is highly regarded for his expertise in valuation. He has published several influential books on the topic, sharing his models and forecasts openly with the public. Financial journalists and media outlets have dubbed him the “Dean of Valuation.”

Last week, Damodaran released a forecast concerning Nvidia (NASDAQ: NVDA), predicting a 37% decline in its share price from its current position as of February 5.

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This article will explain Damodaran’s reasoning for such a significant price drop and present my perspective on why I disagree with his pessimistic outlook.

Is DeepSeek Changing the AI Landscape?

Many are talking about a new Chinese start-up named DeepSeek. This company claims to be revolutionizing AI by developing applications at a much lower cost compared to mainstream models from firms like OpenAI and Anthropic.

According to Damodaran, DeepSeek has modified the AI narrative, proposing that it will create a dual-tier market consisting of low-cost AI products and high-end offerings.

While I see Damodaran’s point, I still believe his assumptions lean heavily on speculation. Reports are surfacing that DeepSeek may have received far more than the $6 million it initially disclosed. If this is true, Nvidia’s position may not be as threatened as anticipated.

Even in a scenario where DeepSeek has achieved such advancements at a lower cost, I do not view this as detrimental to Nvidia. It aligns with Damodaran’s outlook on chip commoditization.

Nvidia’s major clients include tech giants like Microsoft, Alphabet, and Amazon, with additional support from Meta Platforms and Tesla. These companies are also investing in internal chip solutions and lower-cost alternatives like Advanced Micro Devices.

The rationale for these investments isn’t that Nvidia’s products are inferior; instead, businesses are seeking diversified platforms that cut costs. As more chip manufacturers enter the market, products are likely to become commoditized. Thus, I argue that DeepSeek reinforces rather than alters the narrative around chip commoditization.

Image source: Getty Images.

Nvidia’s Growth Outlook: Uncertainty Amid Promising Demand

The one area I find concerning is Nvidia’s growth outlook, which seems clouded. The entry of DeepSeek is leading investors to contemplate the possibility that Nvidia’s growth may slow down in the future.

However, major tech companies still appear committed to Nvidia. Recent statements from leaders at Meta and Microsoft highlight an ongoing investment in AI infrastructure.

While it’s uncertain how much of their budgets will be allocated to Nvidia, I am confident that the company will remain a key player in the AI sector.

Should Investors Buy Nvidia Stock Now?

Interestingly, despite major customers affirming robust capital expenditure budgets, Nvidia’s shares continue to decline.

NVDA data by YCharts.

It is possible Nvidia stocks will keep dropping until the earnings report on February 26. By then, more information should clarify AI spending, both in the short and long term.

My contrarian view is that during the fourth-quarter call, Nvidia’s leadership will underscore continued strong demand for its chips, and that demand is likely to persist.

I would not be surprised to see Nvidia shares rebound significantly. Currently, I view the recent dips as excellent buying opportunities, suggesting the stock price will rise well above its current level.

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Randi Zuckerberg, a former director of market development at Facebook, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, and Suzanne Frey, an executive at Alphabet, also serve on the board. The Motley Fool holds positions in and recommends Advanced Micro Devices, Alphabet, Amazon, Meta Platforms, Microsoft, Nvidia, and Tesla. The Motley Fool also recommends options for Microsoft. Please read our disclosure policy.

The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.