Nvidia Q4 Preview: No Panic! DeepSeek Sparks China's AI Chip Boom

On February 26, after U.S. markets close, AI leader NVIDIA will report its latest earnings, marking the grand finale of the Q4 earnings season. 

Recently, DeepSeek's emergence has shaken the AI landscape by achieving results comparable to ChatGPT at a fraction of the cost. This has sparked market concerns over whether demand for GPUs will remain as strong as before. NVIDIA's stock saw a brief tumble but has since recovered its losses. However, Nvidia's stock has fallen nearly 10% YTD, underperforming the S&P 500 and losing its leading position.

Data Center Growth: Can It Withstand DeepSeek's Disruption?

The market's primary focus is NVIDIA's data center business—whether it can maintain its high growth trajectory. Earnings reports from six other Magnificent Seven tech giants indicate that capital expenditures remain robust, suggesting strong GPU demand.

Beyond tech giants, AI startups are also driving demand. Elon Musk's xAI, for example, has launched the Grok 3 model, which runs on 200,000 NVIDIA H100 GPUs, with plans to scale up to 1 million GPUs in the future.

Interestingly, DeepSeek's rise may not necessarily be a negative for NVIDIA. According to Reuters, citing six industry insiders, demand for low-cost AI models like DeepSeek has led to a surge in purchases of NVIDIA's H20 chips, which are designed specifically for China due to U.S. export controls. Moreover, smaller companies in sectors like healthcare and education are now buying AI servers with DeepSeek models and NVIDIA H20 chips—previously a privilege of deep-pocketed financial and telecom firms. Alibaba has also announced that its capital expenditure over the next three years will exceed the past decade's total. With U.S.-China relations showing signs of thawing, potential easing of export controls could further benefit NVIDIA's business in China.

Blackwell GPU: Market Demand in Focus

NVIDIA's next-generation Blackwell GPU is now in production, and market expectations are sky-high. During the earnings call, CEO Jensen Huang's comments on Blackwell's demand will be a critical focus.

Wedbush analysts report that despite DeepSeek's disruptive potential, their surveys indicate that demand for NVIDIA's Blackwell GPUs still far exceeds supply.

UBS forecasts that NVIDIA's Blackwell revenue will hit $9 billion in Q4 2024, well above the expected $5 billion, and expects Q1 2025 revenue to exceed $20 billion with 700,000 units shipped.

Key Partners Reinforce Bullish Sentiment

The strong performance of NVIDIA's key partners, such as TSMC and Super Micro Computer, further supports the bullish case for NVIDIA.

Reports suggest that NVIDIA has secured over 70% of TSMC's CoWoS-L advanced packaging capacity for 2025 to meet demand for Blackwell GPUs. Analysts estimate that NVIDIA's Blackwell chip shipments will grow over 20% per quarter, with annual shipments surpassing 2 million units.

On February 5, Super Micro Computer announced that data center systems featuring NVIDIA's Blackwell GPUs are ready for delivery, alleviating concerns about potential supply chain constraints.