Nvidia’s upcoming earnings report will closely watch demand for its artificial intelligence chips, as investors question the need for pricey technology given low-cost alternatives from China’s DeepSeek. The company has been a top beneficiary of an AI-driven spending spree by big tech companies over the past two years.
However, claims that DeepSeek’s AI models rival Nvidia’s Western counterparts at a fraction of the cost have led some investors to doubt the essentiality of Nvidia’s cutting-edge chips for gaining an edge in the AI race. This has resulted in a significant loss of market value, with Nvidia losing $593 billion in January.
Despite this, demand for Nvidia’s AI chips remains strong, with big customers like Microsoft and Meta planning to continue their data-center spending. Analysts expect Nvidia’s revenue to surge by 72% in the fourth quarter, driven by accelerating shipments of its powerful Blackwell chips.
However, this growth comes at a cost, with analysts forecasting a significant decline in adjusted gross margin due to increased production costs. The company’s contract manufacturer, Taiwan’s TSMC, has also faced challenges in ramping up production for the complex and costly Blackwell series.
Nvidia is shifting from selling individual chips to full AI computing systems, which has further complicated its production process. Despite these challenges, investors are hopeful that Nvidia can demonstrate its ability to “beat and raise” expectations, which would be positive for the stock.
Source: https://www.reuters.com/technology/nvidias-chip-demand-faces-scrutiny-deepseek-stirs-doubts-ai-spending-2025-02-24