Is Nvidia Stock Still a Buy After DeepSeek's Breathtaking Innovation?

DeepSeek sent shockwaves through the AI investing world when it announced that it trained its R1 generative AI model for less than $6 million. Even more impressive is that some of its capabilities are on par with other leading generative AI models like ChatGPT and Claude. This caused many AI-related investments to fall last week. While some have recovered, Nvidia (NVDA 4.54%) has not.

Nvidia’s stock is around 20% off its all-time high, thanks to the DeepSeek scare, but I don’t think investors should panic sell. Instead, they should consider this a buying opportunity, as the AI race has become more competitive.

Why are people worried about Nvidia?

The biggest scare from DeepSeek’s breakthrough is that companies won’t need the same amount of computing power as they thought, because more efficient training techniques are possible. Because Nvidia’s business is predicated on selling high-powered graphics processing units (GPUs) that are incredible at processing these intense calculations, the prevailing notion is that AI investments may slow down. This is what caused the stock to tumble.

However, I don’t think that’s the correct way of assessing the situation.

While DeepSeek’s discoveries are innovative and revolutionary, their objectives differ from those of U.S. AI firms. Because the U.S. has imposed strict export restrictions on China and its allies, it doesn’t have access to the most powerful chips. So, DeepSeek (and other Chinese AI firms) used Nvidia H800 GPUs, which are watered-down H100 GPUs, to meet export regulations. These aren’t as powerful, so DeepSeek’s engineers had to figure out a more efficient way to use the hardware to get the maximum performance out of them. This is how DeepSeek created a far more efficient generative AI model.

U.S. firms will likely integrate some of DeepSeek’s findings into their models, but none of the domestic companies are going for peak efficiency. Instead, they’re in a race to create the most powerful model possible, spending whatever is necessary to get there. A few of the large tech companies have already commented on DeepSeek’s innovation, like Meta Platforms (META -0.33%). CEO Mark Zuckerberg noted that DeepSeek has made a few “novel” innovations that Meta’s working to incorporate, but stated that Meta isn’t changing its $60 billion or greater capital expenditure plans for 2025.

This is great news for Nvidia and means that its GPUs will still be needed. As a result, using this sale as a buying opportunity looks like a genius move.

Nvidia’s stock is the cheapest it has been in some time

Because Nvidia is still growing its revenue rapidly, using trailing earning metrics can give a false impression of where the company is headed. However, they’re also useful in this case because its future had a wrench thrown into it thanks to DeepSeek’s breakthrough.

At 47 times trailing earnings, the stock looks pricey. However, considering that Wall Street analysts still expect Nvidia’s revenue to grow by 52% in fiscal year 2026 (ending January 2026), that doesn’t seem like too stiff a price to pay for the stock.

NVDA PE Ratio (Forward) data by YCharts.

This is reflected in Nvidia’s cheap forward price-to-earnings (P/E) ratio, as Nvidia trades for just 27 times forward earnings. For reference, that makes Nvidia’s stock cheaper than Amazon‘s (AMZN -2.76%), Apple‘s (AAPL -1.14%), Microsoft‘s (MSFT 0.06%), and Meta’s from a forward P/E ratio standpoint.

While investing in Nvidia’s stock with the threat of more efficient AI models on the horizon carries more risk, I think Nvidia will be OK over the long run. This short-term scare should be put to rest after Nvidia’s fourth-quarter fiscal year 2025 earnings are reported later in February. Nvidia stock looks like a great buy here, and I’ll be scooping up some more shares.