Nvidia Stock Crosses Red Line, Signaling More Pain After DeepSeek Rout

Nvidia Corporation's (NVDA) stock has crossed a critical red line, indicating potential further declines following this week's DeepSeek-induced rout. The company's shares plunged 17% on Monday, wiping out $589 billion in market value, as investors worried that Chinese AI startup DeepSeek's low-cost AI model could reduce demand for Nvidia's high-powered graphics processing units (GPUs). The sell-off was triggered by concerns that DeepSeek's R1 model could rival OpenAI's ChatGPT at a fraction of the cost, potentially leading to a reduction in demand for Nvidia's cutting-edge GPUs.



Nvidia's stock broke down below a seven-month rising wedge and finished the session below the closely watched 200-day moving average, potentially setting the stage for follow-through selling. The sell-off occurred on the highest daily trading volume since May, indicating significant portfolio rebalancing by larger market participants. Crucial support levels on Nvidia's chart around $102, $96, and $76 could be tested in the coming days, while a key overhead area near $130 may pose resistance during recovery efforts.



Despite the recent turmoil, Nvidia shares are still up 103.3% over the past year, significantly outperforming the Zacks Semiconductor – General industry's gain of 66.4%. At the heart of Nvidia's meteoric rise is its dominance in AI, particularly in powering generative AI applications. From ChatGPT to advanced automation, Nvidia's GPUs are the gold standard for businesses leveraging AI. However, the recent sell-off highlights the risks associated with overreliance on a single market segment and the potential impact of increased competition in the AI chip market.

Nvidia's fundamentals remain strong, with revenues soaring 94% year over year and non-GAAP EPS skyrocketing 103% in the third quarter of fiscal 2025. For the fourth quarter, the company expects revenues to be $37.5 billion, implying a massive leap from $22.1 billion in the year-ago period. The Zacks Consensus Estimate for Nvidia's fiscal 2025 and 2026 revenues indicates growth of 111.8% and 48.7%, respectively, while earnings are expected to increase by 126.2% in fiscal 2025 and 43.2% in fiscal 2026.



In conclusion, Nvidia's stock has crossed a red line, signaling potential further declines after this week's DeepSeek-induced rout. While the company's fundamentals remain strong, investors should be cautious and monitor crucial support and resistance levels on the stock's chart. The recent sell-off highlights the risks associated with overreliance on a single market segment and the potential impact of increased competition in the AI chip market. As Nvidia continues to navigate this dynamic landscape, investors should remain vigilant and consider the company's long-term prospects in the context of AI chip competition and market share.