Nvidia (NASDAQ:NVDA) stock received quite a shock last week when the Chinese tech company DeepSeek announced that it had successfully developed an AI chatbot that uses only a fraction of the computing power required by existing models.
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This development poses a significant threat to Nvidia’s market position, as DeepSeek’s efficient AI model reduces the demand for Nvidia’s high-end GPUs. NVDA shares are down 22% since the announcement, sinking to their lowest levels since September.
Should investors be worried? According to one investor, known by the pseudonym MMMT Wealth, the answer is a resounding yes.
“DeepSeek’s AI model, using fewer Nvidia Corporation chips, challenges NVDA’s premium valuation and future demand assumptions,” cautions the investor.
MMMT sees the DeepSeek threat manifesting itself in a number of different ways. First and foremost, if less computing power is needed to reach the same levels of AI performance, the huge capex spending by hyperscalers will start to decrease.
In addition, the investor notes that cheaper chip models will become more fashionable, giving rise to more cost-effective competitors – AMD among them – who will likely succeed in taking a bite out of Nvidia’s market share in the years ahead. This leads MMMT to conclude that assuming Nvidia can continue enjoying gross profit margins of 75% going forward is therefore naive.
Moreover, many of Nvidia’s major customers are in the process of developing their own custom chips. “When you understand that the top handful of NVDA’s customers are investing billions into their own chip manufacturing, you have to question the future viability of this business,” notes MMMT.
Lastly, the advent of generic AI software will chip away at Nvidia’s industry-leading CUDA software, making it easier for tech companies to run their hardware on alternatives.
“In the midst of a tech revolution, the smartest minds in the world are all racing to crack the NVDA moat and to be honest, it’ll be next to impossible for NVDA to fend them all off,” concludes the investor, who rates NVDA shares a Strong Sell. (To watch MMMT Wealth’s track record, click here)
Wall Street, however, is firmly among the Nvidia bulls. Out of 40 analysts, 37 recommend a Buy, while 3 rate it a Hold, giving the stock a Strong Buy consensus rating. The 12-month average price target of $179.81 implies a potential upside of nearly 54%. (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.
