Nvidia (NASDAQ:NVDA) stock has become a rollercoaster emblematic of the artificial intelligence (AI) boom’s euphoria and existential growing pains. Once the darling of the chip and processor world, its shares plummeted 16% in a single day in 27 January, wiping $600bn off its market value.
AI dominance built on GPUs and ecosystem lock-in
Nvidia commands over 80% of the enterprise AI chip market, thanks to graphics processing units (GPUs). These chips excel at the parallel computations required for machine learning. As such, Nvidia’s hardware underpins everything from ChatGPT to autonomous vehicles, with staggering performance improvements. The new GeForce RTX 5090 GPU boasts 3,352trn AI operations per second. Crucially, Nvidia has built an ecosystem moat through software like CUDA and platforms such as Omniverse for synthetic data generation, making switching costs prohibitive for many clients.
The company’s CES 2025 announcements underscored its ambition to also dominate emerging AI frontiers. This includes the Cosmos platform to bring ”ChatGPT moments” to robotics and self-driving cars through integrated environment-aware systems and the all-important agentic AI — this lets developers create autonomous bots for tasks from fraud detection to inventory management.
A $600bn reality check
Nvidia’s January crash wasn’t about fundamentals but a market panic triggered by Chinese startup DeepSeek. The claim of achieving comparable AI performance with radically more cost-efficient models suggested the segment might need fewer Nvidia chips long term. This exposed three vulnerabilities:
- Cloud vs Edge Shift: As companies like DeepSeek optimise for localised AI (addressing privacy and latency concerns), demand growth for data centre GPUs could slow.
- Geopolitical risks: With 25% of revenue from China, Nvidia may see more US export restrictions as a result of DeepSeek. Likewise, there may be a crackdown on backdoor shipments — interestingly, 20% of sales come from the small city-state of Singapore.
- Valuation vertigo: Even post-crash, Nvidia trades at 35 times forward earnings — that’s high for hardware.
The bull vs bear battleground
Several Wall Street analysts have reiterated their bullish positions on Nvidia following the DeepSeek-engendered selloff. However, there’s a host of things to consider that haven’t become entirely clear yet. This dependents on the validity of the Chinese claims that the DeepSeek model was made with older chips and for just $5.6m — 2% of the average cost in the West.
The bottom line on Nvidia
Nvidia remains the AI infrastructure king, but its crown is heavier. The stock’s volatility reflects a market reconciling revolutionary potential with certain realities. At current prices and given the DeepSeek upheaval, Nvidia offers neither the margin of safety of value stocks nor the hypergrowth certainty of 2023. However, for those believing AI’s “iPhone moment” remains ahead, dips like this could prove buying opportunities.
Personally, I’m waiting to hear more about the DeepSeek model before considering buying more Nvidia stock. With accusations of stolen data and concerns about its cost claims, there could be more to this story.
This post was originally published on Motley Fool
