Nvidia stock outlook remains positive despite DeepSeek claims
Nvidia's stock outlook remains strong despite recent claims from DeepSeek that sparked a temporary decline. Analysts believe that demand for Nvidia's AI-centric processors will continue to grow.
Recent developments in artificial intelligence (AI) suggest vast implications for the future. In the last couple of years, advances in generative AI have propelled a bull market as companies rush to adopt new algorithms promising significant productivity increases.
Nvidia has been a major beneficiary, with its graphic processing units (GPUs) proving invaluable not only for gaming but also for AI computations. This resulted in Nvidia's stock surging more than 500% over the past two years due to robust sales of its processors.
However, the recent claims from Chinese start-up DeepSeek have jeopardised this upward trend, causing Nvidia’s stock to slump by 17% and around $600 billion in market capitalisation to evaporate in just one day. Following this, Wall Street analysts began assessing these claims critically.
Bernstein analyst Stacy Rasgon questioned the credibility of DeepSeek's assertion regarding the cost of building its chatbot, noting that essential development expenses were likely omitted. Many investors panicked, fearing these more efficient AI models could threaten Nvidia's business.
Contrary to these fears, it appears that increased efficiency in AI models can lead to lower costs and greater demand for Nvidia’s AI-centric processors. Analyst C.J. Muse from Cantor Fitzgerald stated that innovation is likely to make AI more ubiquitous, fostering a need for increased computational power over time.
On January 24, Tigress Financial upgraded Nvidia to a strong buy, raising its price target to a Street-high $220, indicating possible gains of 71% compared to Tuesday's closing price. Analysts see continued growth in data centers supporting AI, which will benefit Nvidia, as it currently controls a significant share of the data centre GPU market.
Despite the uncertainty from DeepSeek’s claims, Wall Street is generally optimistic about Nvidia, with 94% of 63 analysts rating it as a buy or strong buy.
A recent roundtable discussion with Fool analysts indicated that DeepSeek’s announcement might be more of a technology evolution rather than a breakthrough. As the AI revolution continues, further significant developments could emerge.
Nvidia’s stock currently trades at around 50 times earnings, which is lower than its average P/E ratio of 81 over the past five years, making it relatively cheap historically. Given its impressive track record and innovation history, Nvidia remains a compelling investment opportunity.
