Posted on 01/29/2025 9:43:48 AM PST by SeekAndFind
Technology stocks were rocked to their core Monday after claims made by a Chinese start-up threatened to upend the existing artificial intelligence (AI) paradigm.
There’s a compelling argument that recent developments in the field of artificial intelligence (AI) could have vast implications for the future. Over the past couple of years, advances in generative AI have helped fuel a roaring bull market with promises of significant productivity increases. The potential windfall of increased profits has companies racing to adopt these next-generation algorithms.
One of the biggest beneficiaries of these secular tailwinds has been Nvidia (NVDA 8.93%). The company’s graphic processing units (GPUs), which were initially developed for gaming applications, proved equally adept at supplying the computational horsepower needed for AI. Robust sales of these processors fueled a parabolic rise, sending Nvidia stock up more than 500% over the past two years.
However, claims made by Chinese start-up DeepSeek threatened to upset the existing paradigm, sending Nvidia into a tailspin. The stock slumped 17% and lost nearly $600 billion in market cap in a single day. Nevertheless, after a good night’s sleep, Wall Street has some thoughts on the matter.
Edgar Allan Poe famously wrote, “Believe nothing you hear, and only one half that you see.” Wall Street seems to be taking that approach, to a certain extent, regarding some of the assertions made by DeepSeek. Specifically, claims that it created its chatbot for $5.6 million are being met with skepticism by some analysts.
Bernstein analyst Stacy Rasgon wrote in a note to clients (emphasis mine), “Did DeepSeek really ‘build OpenAI for $5M?’ Of course not.” The analyst suggested that many of the routine expenses and development costs were left out of the total. “DeepSeek’s R1 paper did not quantify the additional resources that were required to develop the R1 model (presumably they were substantial as well),” he wrote.
Many investors panicked on Monday, fearing that more efficient AI models would mean less business for Nvidia, but that’s likely not the case. According to Jevons paradox, efficiency gains from technological advancements generally increase demand by bringing costs down. Put another way, lower-cost AI models will drive increased adoption, which will increase demand for Nvidia’s AI-centric processors.
Cantor Fitzgerald analyst C.J. Muse took a similar position: “Innovation is driving down cost of adoption and making AI ubiquitous,” he wrote. “We see this progress as positive in the need for more and more compute over time (not less).” This bodes well for Nvidia.
Tigress Financial upgraded Nvidia to strong buy on Tuesday and increased its price target on the stock to a Street-high $220. That represents potential upside for investors of 71% compared to Tuesday’s closing price. The analyst believes that the data center growth needed to support AI will continue unabated and Nvidia — which controls a dominant share of the data center GPU market — will continue to profit from this trend.
Even in the wake of the DeepSeek bombshell, Wall Street is almost universally behind Nvidia. Of the 63 analysts who have offered an opinion thus far in January, 94% rate it a buy or strong buy, and none recommend selling.
This shows that Wall Street remains remarkably bullish on Nvidia despite DeepSeek’s seemingly earthshaking developments.
On Jan. 27, a roundtable discussion among Fool analysts took place, and they debated the issues surrounding DeepSeek’s announcement. From that conversation, several highlights stand out:
Collectively, the evidence suggests that DeepSeek’s bombshell was more of an inevitable evolution of technology than a major breakthrough.
It’s still the early days of the AI revolution, and as such, investors should expect more “bombshell” developments in the field in the months and years to come. Some investors were scared out of Nvidia on Monday, but having a knee-jerk reaction to news like this could be a costly mistake.
Data by YCharts
Finally, Nvidia stock is currently selling for roughly 50 times earnings. While that might be enough to send value investors headed for the exits, that’s far below Nvidia’s average price-to-earnings (P/E) ratio of 81 over the past five years, making it relatively inexpensive from a historical perspective. Furthermore, the stock gained more than 2,000% during that same period, which illustrates why it is worthy of a premium.
Given the company’s long track record and history of innovation, I still believe Nvidia is a worthwhile investment.
Given Deep Six is based on pirated nvidia chips……
MSN Money: “There is only one chip company in the world launching autonomous, robotics, and broader AI use cases, and that is Nvidia,” said Wedbush analyst Daniel Ives.
Bernstein has reiterated its outperform ratings on Nvidia, with a $175 price target, and Broadcom, with a $220 target, saying it continues to like those names within the U.S. semiconductor sector.”
CCP: Chinese Communist Party actually means Cut, Copy, Paste.
My personal take...
After the initial shake-out, more voices calling for temperance rose to the surface.
While it is entirely possible that a more efficient model could lead to weakening demand for Nvidia’s chips, it is far from a guarantee. In fact, it could have the opposite effect: It could lead to increased demand. There is a concept in economics dubbed the Jevons Paradox that may apply here — that is, increased efficiency in a market leads to more demand, not less.
If DeepSeek’s model leads to AI models in general taking a leap forward in efficiency, I believe that AI applications will become more useful and ubiquitous, and thus demand will increase. We will see how this pans out, but the initial panic has subsided, and today saw Nvidia’s stock recover somewhat.
My personal take...
After the initial shake-out, more voices calling for temperance rose to the surface.
While it is entirely possible that a more efficient model could lead to weakening demand for Nvidia’s chips, it is far from a guarantee. In fact, it could have the opposite effect: It could lead to increased demand. There is a concept in economics dubbed the Jevons Paradox that may apply here — that is, increased efficiency in a market leads to more demand, not less.
If DeepSeek’s model leads to AI models in general taking a leap forward in efficiency, I believe that AI applications will become more useful and ubiquitous, and thus demand will increase. We will see how this pans out, but the initial panic has subsided, and today saw Nvidia’s stock recover somewhat.
Interesting though, they are competing with another Chinese LLM, Alibaba’s Qwen.
A fool and his money are some party... and the AI hawkers are partying all the way to their Cayman Island accounts.
I suspect the Nvidia chips are too expensive and too power hungry for consumer use. They’re probably too capable for widespread military use.
They’re great chips, but their market may not be as large as hoped for.
Be aware, I’m not a great investor. My mom with an eighth-grade education was a great investor.
“Technology stocks were rocked to their core”
NVDA still up 100% in a year.
2,000% in five years.
Qwen, also known as Tongyi Qianwen (通义千问), is a family of large language models developed by Alibaba. The latest version, Qwen 2.5, has been making headlines for its impressive performance. Alibaba claims that Qwen 2.5 outperforms other leading AI models, including OpenAI’s ChatGPT, DeepSeek’s V3, and Meta’s Llama 3.1.
Copilot: Qwen
Every country in the world is going to require millions of them for data centres that are currently being planned or under construction. The market for NVIDIA chips is going to be strong for a long time to come.
“I suspect the Nvidia chips are too expensive and too power hungry for consumer use. They’re probably too capable for widespread military use.”
Nvidia has consumer GPU chips. Here is a gaming PC for $849. https://www.bestbuy.com/site/cyberpowerpc-gamer-master-gaming-desktop-amd-ryzen-5-5500-16gb-memory-nvidia-geforce-rtx-4060-8gb-1tb-ssd-black/6575120.p?skuId=6575120
Then there are their “AI” processors which are used to train AI programs.
Go figure. ChiComms lied. Their spyware is a house of cards.
Yes, I saw that too, thanks. The Tech Space is always crackling with energy, and much of it is reciprocal.
More importantly...
What did Nancy Pelosi do?
New technology disrupts but that is how new growth curves are created. Sometimes disruptive technologies like AI get disrupted because that’s where the focus of innovation is. Some like Apple have often done to themselves because they are already thinking at least one generation ahead. The timing may be a surprise but as one who is long on NVDA. I will be interested in how they respond over the next few quarters.
And Nvidia is more than a chip company. They are a software and network company. As an example, they have more software engineers than hardware. Their CUDA environment leads the AI deployment systems. It compiles a number of languages for AI use on their chips. Their purchase of Mellanox gave them the fast network technology for data centers.
I bought NVDA Monday and yesterday. There’s nothing about DeepSeek that indicates the need for Nvidia’s GPUs is going to decline. And I don’t need the money short-term.
PELOSI DUMPED ALOT OF HER STOCK IN THAT COMPANY-—MAYBE GAINED ABOUT $12 M
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