Nvidia (NVDA) has been on an incredible journey, setting record highs earlier this year before experiencing a 16% pullback. But does this decline present a buying opportunity?
The recent drop was fueled by concerns that DeepSeek, a Chinese AI start-up, had found a way to train powerful AI models with less computing power and lower costs than its U.S. competitors. Given Nvidia’s dominance in supplying high-performance GPUs (graphics processing units) for AI development, investors feared this innovation could weaken demand for Nvidia’s chips.
But is that really the case? And what does this mean for those looking to understand market opportunities and learning how to invest in stocks?
Jensen Huang, Nvidia’s CEO, just made some eye-opening statements that paint a very different picture. His insights suggest that AI’s growing complexity might actually drive more demand for Nvidia’s GPUs, not less.
How Is Nvidia Performing Financially?
Before diving into Huang’s latest comments, let’s look at how Nvidia has been performing financially.
In fiscal 2024 (ended Jan. 26, 2025), Nvidia achieved record-breaking results:
- Revenue surged to $130.5 billion, a 114% increase compared to the previous year.
- The data center segment alone contributed $115.1 billion, growing by 142% year-over-year.
- Nvidia’s latest Blackwell GB200 GPUs, introduced in Q4, generated $11 billion in sales, making it the fastest-growing product launch in company history.
These numbers confirm that Nvidia is experiencing unprecedented demand for its AI-focused GPUs. But will it last?
Is AI Shifting Away From Nvidia?
DeepSeek raised alarm bells when it revealed that it trained its AI model for just $5.6 million—a fraction of what companies like OpenAI have spent. Reports also indicate that DeepSeek invested around $500 million in infrastructure, but even with that, the cost savings were substantial.
How did they do it?
DeepSeek relied on software-based optimization techniques like distillation, where smaller AI models are trained using knowledge from larger, more advanced models. This significantly reduces computing power needs and, at first glance, seems like bad news for Nvidia.
If AI developers shifted entirely to this method, demand for GPUs could plummet. However, Nvidia’s CEO sees things differently.
Why Does Jensen Huang Think AI Will Need More GPUs?
Huang recently explained that AI companies are now shifting away from traditional training methods and focusing on reasoning models—a game-changer that could fuel an even bigger demand for GPUs.
What are reasoning models? Unlike previous AI models that mainly process vast amounts of data, reasoning models are designed to “think” and generate more complex responses. Instead of just analyzing existing information, these models require far more computing power to simulate decision-making and problem-solving.
Huang stated that these models can consume 100 times more computing power than previous AI models. And in the future, some AI models could require thousands or even millions of times more compute power.
What does this mean for Nvidia? It means that AI’s growing complexity will likely increase demand for powerful GPUs rather than reduce it.
Who’s Investing Billions in AI?
The world’s biggest tech companies are not slowing down their AI investments—in fact, they’re ramping up spending:
- Meta (Facebook): Up to $65 billion on AI infrastructure.
- Alphabet (Google): Could spend $75 billion this year.
- Microsoft: Likely to invest over $80 billion.
- Amazon: Expected to spend more than $100 billion on AI-related technology.
While not all of this money will go directly to Nvidia, these figures show that AI demand is booming—and Nvidia is still at the center of it.
Is Nvidia Stock Undervalued?
Given Nvidia’s rapid growth, is the stock still a good investment?
- Based on fiscal 2024 earnings per share (EPS) of $2.99, Nvidia trades at a price-to-earnings (P/E) ratio of 42.5—which is 28% lower than its 10-year average P/E ratio of 59.3.
- Analysts estimate Nvidia’s EPS could rise to $4.49 in fiscal 2026, bringing the forward P/E ratio down to 27.7.
If Nvidia’s stock were to return to its historical valuation, it would need to:
- Rise by 53% in the next 12 months just to maintain its current P/E ratio.
- Double in value (114% increase) to match its 10-year average P/E.
Considering the DeepSeek panic played a role in Nvidia’s recent stock dip, Huang’s latest comments about higher AI compute demands could reignite investor confidence and drive Nvidia’s stock back up.
Final Thoughts
So, should investors be worried about DeepSeek’s innovations? Not necessarily.
While AI models are evolving, the demand for high-performance GPUs remains strong. AI companies are shifting toward reasoning-based models, which could require significantly more computing power. If that trend continues, Nvidia’s chips will be more essential than ever.
With major tech firms spending billions on AI infrastructure and Nvidia leading in GPU innovation, the company’s future looks promising. The recent stock dip might just be a buying opportunity for long-term investors.
Will Nvidia’s stock skyrocket in 2025? If Huang’s prediction about AI’s growing computing needs comes true, the answer could very well be yes.