Nvidia (NASDAQ:NVDA) shares took a wild ride this week after Chinese startup DeepSeek announced it had built an AI chatbot using far less computing power than anyone thought possible.
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Some experts are skeptical, thinking DeepSeek might be downplaying the resources they used. Others believe this could make AI more accessible and widespread, while some remain convinced that U.S. technological primacy and premium chips will continue to drive advances in AI use cases, robotics, and autonomous systems.
However, one top investor, known by the pseudonym Trapping Value, is not buying any of the explanations.
“What DeepSeek did, is permanently destroying the narrative that this AI capex can create sustainably high margins,” asserts Trapping Value, who ranks among the top 4% of TipRanks’ stock pros.
The investor contends that Nvidia’s meteoric rise has been fueled by profit margins that are ultimately unsustainable. As evidence, Trapping Value points to the financial struggles of major AI chip consumers, noting that the AI revolution has yet to translate into profits.
Trapping Value highlights Meta, Microsoft, and OpenAI as prime examples – companies pouring billions into AI while still losing money on their projects. The investor is particularly bearish on OpenAI, citing projections that the company could rack up $44 billion in losses by 2028.
“Everyone is losing money on AI, except NVDA and AVGO,” Trapping Value noted. “The chipmakers’ hopes of continuing to make money rest on this insanity of return-free investment continuing.”
The commoditization of AI – and the AI chips that power the technology – is coming, warns the investor. This will cause the gross profit margins of companies like Nvidia to collapse, signifying the end of the semiconductor growth story.
“DeepSeek showed exactly where the bubble was, in Wall Street’s chip margins,” concludes Trapping Value, who rates NVDA shares a Strong Sell. (To watch Trapping Value’s track record, click here)
‘We’ll have to agree to disagree’ appears to be the sentiment on Wall Street. With 37 Buy and 3 Hold ratings, NVDA enjoys a Strong Buy consensus rating. Its 12-month price target of $178.63 suggests a potential upside of ~43% for the next 12 months. (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.