Shares of chipmaker Nvidia (NVDA) are down at the time of writing as investors react to news that its chips were used by Chinese start-up DeepSeek to train a cutting-edge AI model. DeepSeek’s AI model, which claims to have similar capabilities to U.S. leaders like OpenAI and Anthropic, was trained using Nvidia’s H800 GPUs at a cost of $5.6 million – far less than what Western competitors typically spend.
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While this shows that there is high demand for Nvidia chips in China, it also raises concerns about potential U.S. export restrictions and the cost-effectiveness of building massive data centers for AI training.
Indeed, in terms of export restrictions, this may lead the U.S. to impose even stricter measures on what is allowed to be sold in the Chinese market. Furthermore, when it comes to cost-effectiveness, some could start wondering why companies would continue to spend billions of dollars on data centers when they can spend a fraction of that and achieve similar performance.
Will Nvidia’s Sales Be Negatively Impacted?
In both cases, it is reasonable to ask if Nvidia’s sales will be negatively impacted going forward. However, that currently does not seem to be the case, at least on the data center front, as Andrej Karpathy, a co-founder of OpenAI, took to X (formerly Twitter) to say that this was not the end of large GPU clusters. Instead, companies just need to be less wasteful with their spending, and DeepSeek’s model is a good demonstration of this.
Still, export restrictions remain a wild card, as Trump is expected to be even more hawkish on China than the Biden administration. But even in this regard, restrictions might not be as big of a headwind as some might fear because, in reality, Nvidia’s chips have so far still managed to find their way into China. As a result, even though Nvidia might not directly sell to China, there are those who are willing to resell in the country, which will ultimately offset at least some of the restrictions.
Is NVDA a Good Stock to Buy?
Overall, Wall Street has a Strong Buy consensus rating based on 37 Buys and three Holds assigned in the past three months. After a 175% rally in its share price over the past year, the average NVDA price target of $177.08 per share implies an upside potential of 30.7% from current levels.
