Shares of Nvidia Corporation (NVDA) lost their momentum last Friday due to concerns about increased capital expenditure (capex) in AI, sparked by the release of China’s DeepSeek. This highlights increasing investor worries that DeepSeek’s affordable AI model, built using lower-capability chips, could lead to a potential slowdown in Nvidia’s revenue. Nvidia’s shares dropped over 3% on Friday; however, the shares ended the week at a gain of around 4%.
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What is the DeepSeek R1 AI Model?
DeepSeek is an AI research lab that originated from High-Flyer, a Chinese quantitative hedge fund. It was founded by Liang Wenfeng, a seasoned expert in hedge funds and the AI industry, aiming to develop innovative AI models.
Earlier this month, DeepSeek launched its cutting-edge reasoning model, DeepSeek R1, which attracted a lot of attention due to its impressive performance and affordable pricing. Designed to enhance reasoning and analysis, DeepSeek R1 is seen as a strong competitor to well-known AI models from OpenAI.
Nvidia in Focus as DeepSeek’s AI Steals the Spotlight
Nvidia has experienced substantial growth over the past two years, emerging as the primary beneficiary of the AI hardware boom. As major tech companies ramped up their data center capabilities to support AI development, the demand for Nvidia’s GPUs soared.
On the other hand, DeepSeek’s AI model claims to match the capabilities of OpenAI using Nvidia’s H800 GPUs (graphics processing units) at a cost of $5.6 million. This is significantly lower than the typical expenses of its U.S. competitors. Moving ahead, if AI developers shift to smaller, more cost-effective training methods like DeepSeek, Nvidia may not experience the same rapid GPU demand moving forward.
Nonetheless, the U.S. tech giants like Microsoft (MSFT), Meta (META), and Alphabet (GOOGL) remain committed to their AI ambitions and have raised their capex in the past quarters. Earlier this month, Microsoft revealed plans to invest approximately $80 billion in AI infrastructure and data centers in 2025, aiming to support advanced AI workloads. Analysts expect this trend will continue when these companies report their earnings for the December quarter later this week.
Is NVDA a Good Stock to Buy?
With 36 Buys and three Holds, NVDA stock has a Strong Buy consensus rating on TipRanks. The average NVDA stock price target of $176.86 implies a 24% upside potential.
In 2024, Nvidia’s shares surged by over 170%.
