(Bloomberg) — Nvidia Corp. investors have typically rushed to buy the stock on any dips. But the mood since the DeepSeek-driven rout has been different, signaling that fears of a slowdown in AI spending aren’t going away.
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Nvidia shares slumped 17% in a single day, erasing about $590 billion from the company’s market capitalization, after the Chinese AI startup claimed high performance at a lower cost. The stock has since regained some ground, but it’s still more than 11% below its January record high. That’s despite key customers Amazon.com Inc., Alphabet Inc., Meta Platforms Inc. and Microsoft Corp. planning a combined $300 billion in capital expenditures this year.
Dip buyers didn’t step in until Nvidia shares had fallen more than 21% from their peak, a phenomenon that’s happened only a handful of times in recent years. It points to increasing investor caution about AI spending — especially because DeepSeek claimed to use fewer chips for its AI model.
“There’s this underlying concern about when the party is going to end and I think DeepSeek was a wake up call that that may come faster than people think,” said Gene Munster, managing partner and cofounder of Deepwater Asset Management. “The psychology within a day shifted from being essentially an impenetrable, bulletproof story to one that can viciously change.”
The negative sentiment has created a very different setup heading into Nvidia’s earnings, due on February 26. Almost every quarterly report in the last two years has been positively anticipated, with shares trading at or near record highs ahead of the results. This time, the company needs to convince investors who may have started to doubt how much further the stock can run.
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“The negative stock reaction has become the story, and in many ways frames the biggest risk from here,” Morgan Stanley analysts led by Joseph Moore wrote in a note last week. With investor sentiment having soured, they wrote that “the cynicism is overwhelming. It remains to be seen if revenue acceleration can mitigate that concern; we think that it can, but it remains a debate.”
The wobble in investor confidence is occurring as Nvidia comes up against past quarters where it saw exponential growth, making year-over-year comparisons difficult to top. The company is expected to report revenue growth of 73%, down from 94% last quarter and significantly lower than the 265% growth in the same quarter last year, according to estimates compiled by Bloomberg.
Of course, some see the negativity around Nvidia shares as a chance to buy. Evercore ISI analysts led by Mark Lipacis added a tactical outperform rating ahead of the results, saying that the DeepSeek selloff creates an opportunity. And, with roughly two weeks to go before results, shares could certainly make up lost ground.
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The selloff has also likely made Nvidia’s valuation more palatable for some investors. The shares are currently trading at about 30 times forward earnings, compared with their five-year average multiple of more than 40 times.
Still, with dip buyers not rushing in in a significant way, the shares look precarious ahead of results — especially if the earnings don’t top the ever-high bar investors have for the company.
If Nvidia disappoints, the shares will probably be range-bound until the second half, said Ivana Delevska, chief investment officer at SPEAR Invest, adding that concerns around Nvidia’s Blackwell chips have also been weighing on investors.
The rollout of the highly-anticipated new lineup was slowed down by manufacturing challenges and supply constraints. Even though the company has said Blackwell will drive growth amid strong demand, concerns about costs remain.
“People are already a little bit nervous about Blackwell to begin with. Management has been saying that it’s on track and everything is great, but for some reason people are not convinced that’s the case,” said Delevska. “That’s probably why you’re not seeing the stock bouncing until they report.”
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