NVIDIA Navigates AI Turbulence: Stock Dips Amid DeepSeek Disruption, Eyes on Upcoming Earnings Report

As of last week, NVIDIA (NVDA) stock has increased by 2.63% over two consecutive days, contributing to a two-day rise of 5.88%. Over the past week, the stock gained 6.94%, and year-to-date, it has risen by 3.4%, with a current market valuation of $3,400.437 billion.

Recently, artificial intelligence infrastructure firm Nebius saw its shares rise by over 14%, with NVIDIA's filings revealing a stake of approximately 1.2 million Class A shares. Nebius also closed a $700 million strategic equity financing round, attracting investments from firms including NVIDIA.

In recent years, NVIDIA has benefited from the AI surge, prompting investors to buy on dips. However, the emergence of Chinese AI startup DeepSeek, which shook the U.S. stock market, has spurred concerns over slowing AI spending.

Following DeepSeek's claims of achieving high performance at lower costs, NVIDIA's stock plunged by 17% in one day, erasing $590 billion in market value. Although NVIDIA's stock price eventually recovered, it remains over 11% below the all-time high recorded in January. This downturn coincides with major clients like Amazon, Google, Meta Platforms, and Microsoft planning a combined capital expenditure of $300 billion this year.

This time, investors waited for over a 21% drop from the peak before buying, highlighting increased caution over AI spending, especially given DeepSeek’s efficient chip usage claims. Gene Munster from Deepwater Asset Management pointed out market concerns about the long-term sustainability of the AI boom.

This cautious sentiment sets a different tone for NVIDIA's earnings report scheduled for February 26. In contrast to past years of high expectations, the firm now faces the challenge of persuading skeptical investors.

Despite investor apprehensions, NVIDIA's anticipated revenue growth of 73%, down from 94% last quarter and significantly lower than the 265% year-over-year increase, still draws strategic interest. Evercore ISI analysts, led by Mark Lipacis, suggest that the decline stemming from DeepSeek's market disruption offers a buying opportunity.

The drop in NVIDIA's stocks may present an attractive valuation for certain investors, with a forward price-to-earnings ratio around 30, compared to a five-year average exceeding 40. However, without a significant influx of buyers, the stock's outlook remains uncertain leading into the earnings report, unless the company exceeds the high expectations placed upon it.

Ivana Delevska, CIO of SPEAR Invest, warns that NVIDIA’s shares might fluctuate unless they surpass investor expectations. Concerns about NVIDIA's Blackwell chip line, slowed by manufacturing challenges and supply constraints, persist despite the company expressing strong demand.

Delevska notes skepticism about the Blackwell product launch and mentions the absence of a stock rebound ahead of the earnings report, reflecting shareholder apprehension. The upcoming product innovations, including Project DIGITS, aim to democratize personal AI computing through efficiency-focused designs like SOCAMM, possibly setting new industry standards.

Simultaneously, market dynamics such as shifts in investor holdings indicate strategic pivots. The recent SEC filing reveals a notable reduction in NVIDIA shares held by prominent funds, reallocating towards Tesla, demonstrating the evolving investment landscape within AI and related sectors.