Nvidia’s stock has seen a significant downturn in recent months, with shares up less than 3% year-to-date as of February 2025. This slump is largely due to growing concerns about the company’s profitability and its reliance on generative AI software.
The emergence of cheaper open-source rivals from China, such as DeepSeek, has raised eyebrows among investors. These Chinese companies are reportedly developing cutting-edge language models at a fraction of the cost of Nvidia’s hardware. However, experts argue that this threat may not be immediate, as Nvidia’s latest report for the fourth quarter will provide more insight into the company’s growth prospects.
Nvidia’s dominance in the AI industry is largely due to its ability to release new and improved graphics processing units (GPUs) for running and training AI models. These products are expensive but offer significant performance improvements that can lead to operational cost savings.
A recent open-source large language model called DeepSeek R1 has raised concerns about Nvidia’s growth thesis. However, analysts point out that the impact of this new technology may be limited due to several factors. Firstly, DeepSeek’s release was late in the fourth quarter, and its effect on guidance may not be significant. Secondly, experts have disputed some of DeepSeek’s claims, citing higher hardware spending than reported.
Some of Nvidia’s biggest customers, such as Meta Platforms, remain committed to buying AI hardware despite the potential threat from DeepSeek. CEO Mark Zuckerberg expects to invest hundreds of billions of dollars in the industry over the long term.
Considering these factors, analysts believe that Nvidia’s stock remains reasonably priced compared to its fundamentals. However, the company’s low valuation may make sense given the speculative and risky nature of the AI industry. As such, investors are advised to hold onto their shares but approach with caution.
Source: https://www.fool.com/investing/2025/02/22/is-nvidia-stock-a-buy-sell-or-hold-in-2025