Nvidia (NASDAQ:NVDA) is betting on sustained hyperscaler capex spending to fuel its revenue and margins, but the game may be shifting. The DeepSeek news has shaken the industry, raising questions about whether efficiency, rather than brute-force computing power, will dictate the next wave of AI dominance.
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It’s no surprise that the idea of more efficient models has rattled Nvidia’s stronghold. After a steep plunge following the DeepSeek news, the stock has been on a rollercoaster as investors scramble to comprehend what this shift could mean for the chip giant’s dominance.
One investor, known by the pseudonym Bluesea Research, believes that despite Nvidia’s tremendous track record, the writing on the wall doesn’t look good at the moment.
“Despite great products, Nvidia stock could see a correction in the near term as the market finds the right balance between computing power and efficiency,” the investor opined.
Bluesea spots evidence that the short-term focus among hyperscalers will be on building better AI efficiencies, noting that both Amazon and Microsoft have already started to offer DeepSeek models to their customers in an effort to keep costs down.
“At least in the near term, we could see some adjustment in the investment runway for big tech AI spenders,” predicts Bluesea, adding that “this will hurt the demand for the latest chips from Nvidia.”
Another pressure point that Bluesea expects to bring down NVDA’s margins is the advent of unique chips that hyperscalers are in the process of developing. Companies like Google, Amazon, and Microsoft have already made significant strides in designing custom AI chips tailored to their specific workloads, reducing their dependence on Nvidia’s GPUs. Given that hyperscalers account for roughly 40% of Nvidia’s revenue, Bluesea warns that this dual threat – a shift to in-house solutions and a shrinking customer base – poses a serious risk to the company’s profitability.
Bluesea is also concerned by the large variance between high- and low-revenue and EPS estimates among analysts. The investor mentions that for FY 2027, the high end of the revenue and EPS estimates are roughly double that of the lower projections. This dynamic is fairly unusual among Nvidia’s big tech peers, states Bluesea, and further points to the uncertainty surrounding prospects for the company.
The bottom line? Bluesea isn’t convinced the risks are fully baked into the lofty valuation – and calls NVDA shares a Sell. (To watch Bluesea Research’s track record, click here)
Wall Street, however, sees things differently. With 37 Buy against just 3 Hold rating, NVDA owns a solid Strong Buy consensus. Analysts peg the stock’s 12-month price target at $178.71 — a projection that implies a ~38% upside from current levels. (See NVDA stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured investor. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
