Nvidia’s stock price has taken a hit after Chinese company DeepSeek released a model similar to ChatGPT, sparking concerns about the demand for artificial intelligence (AI) infrastructure. The primary reason investors are panicking is that DeepSeek claims to have trained its model on older Nvidia chipware, leaving analysts questioning the value of Nvidia’s newer architecture.
As a result, shares of Nvidia have dropped by 3.67% in recent days, wiping out $600 billion of market capitalization. However, this decline has also led to a decrease in valuation multiples, with Nvidia’s forward price-to-earnings (P/E) ratio currently at 30.1.
Historically, Nvidia’s forward P/E has hovered around 30, which is similar to its current value despite the company’s market cap doubling since then. This suggests that Wall Street analysts are expecting Nvidia’s earnings to double, but this may not be the case given the uncertainty surrounding AI demand trends.
The DeepSeek storyline has raised questions about the relevance of Nvidia’s forward P/E ratio, as earnings estimates are likely to change in response to industry developments. While history may suggest Nvidia’s value could double this year, it is unlikely to reach that level in 2025 due to the uncertainty surrounding AI rivalries.
In the long run, Nvidia remains a leader in the AI race, with its GPUs playing an essential role in the technology’s development. However, investors should exercise caution and consider refining their models in response to the DeepSeek news.
Source: https://www.fool.com/investing/2025/02/02/nvidias-stock-just-did-something-it-hasnt-done-in