DeepSeek did Nvidia a favor
DeepSeek hasn’t sunk Nvidia’s prospects for a big year. But more-grounded hopes should still prove advantageous to the artificial-intelligence giant as it navigates a tricky road ahead.
The panic sparked by the Chinese AI startup’s revelations last month cost Nvidia nearly $750 billion in market cap in a little over a week’s time. The stock has recovered some since, but is still down about 6% as of Friday’s close compared with the Nasdaq’s flat performance over the same period.
DeepSeek’s claims to have produced an advanced AI model at a relatively low computing cost raised the prospect that demand could wither for Nvidia’s expensive systems that have been considered must-haves for any company looking to build up generative AI capabilities.
The recent spate of earnings reports from Nvidia’s largest customers strongly suggest otherwise. Amazon, Meta Platforms and Google-parent Alphabet all projected sharp increases in capital spending for this year—on top of a surge last year. All three also touted their relationships with Nvidia in their earnings calls.
Amazon Chief Executive Andy Jassy said the “deep partnership” between the two will last “for as long as we can see into the future.” Amazon expects Nvidia’s new Blackwell chip family could cause a short-term hiccup in growth. Data-center revenue in the fiscal fourth quarter is expected to have risen by only $2.6 billion from the period ended October, according to estimates from FactSet.
That would be a sharp deceleration from the $4.5 billion in data-center sales added in the previous quarter—and the lowest sequential gain for that segment since AI demand started booming in early 2023.
Nvidia CEO Jensen Huang said on the company’s last earnings call in November that Blackwell production “is in full steam.” But many analysts don’t expect those Blackwell shipments to hit high volume until the second half of the new fiscal year, which could mean a disappointing forecast from Nvidia for its April-ending quarter. Mark Lipacis of Evercore ISI said an “air pocket” in shipments is the biggest risk to his positive outlook on Nvidia’s stock heading into the report.
Nvidia’s clipped valuation could thus be a blessing in disguise, if it helps ground expectations a bit ahead of what could be a mixed report. The stock is now trading a little under 32 times projected earnings for this year, compared with a forward earnings multiple of nearly 40 times six months ago.
Nvidia is also now cheaper by that measure than most of its megacap tech peers despite superior growth projections, with revenue projected to rise 53% this year compared with 12.2% average growth expected for Apple, Microsoft and the other tech giants fetching market caps of more than $1 trillion each, according to FactSet data.
And most of those companies are still planning to shovel many billions more Nvidia’s way. DeepSeek won’t be making Nvidia come up short just yet.
Write to Dan Gallagher at dan.gallagher@wsj.com