Nvidia Rises On Google's Massive Spending Plans; Is Nvidia A Buy Now?
investors.com
Nvidia ( NVDA) rose Wednesday after Alphabet ( GOOGL) disclosed massive capital spending plans in the wake of DeepSeek's efficient training models. Nvidia stock is just below its 200-day moving average and at levels last seen in October.
Does the pullback make artificial intelligence titan Nvidia a buy or sell now?
Late Tuesday, Alphabet announced a massive $75 billion spending bill in 2025, a 43% increase from the prior year and above analyst estimates of $59 billion. Analysts believe much of that will be devoted to AI initiatives.
While the search giant will continue to use Nvidia chips, it is also making its own in-house chips.
The news follows Meta Platforms' ( META) announcement of its own huge spending target.
On Tuesday, China retaliated against U.S. tariffs. China accounted for 12% of total Nvidia sales for the four quarters ended in October, according to The Wall Street Journal.
However, when President Donald Trump's tariff plans for China, Canada and Mexico were first revealed in November, Bernstein Research analyst Stacy Rasgon noted that "raw semiconductor" imports by these countries were tiny and would not hurt Nvidia. The analyst did say the tariffs raise some concerns that there may be more broad-based action that could hurt the semiconductor industry and even leaders like Nvidia.
Mizuho analyst Jordan Klein noted that the "restrictions seem in line or less severe than anticipated." Piper Sandler analysts also stated there were fewer entities on the restriction list than expected.
For now, China's tariffs target oil, coal, liquified natural gas and agricultural machinery and will go into effect on Feb. 10. Notably, semiconductors and Nvidia chips were not on the list although export controls on some scarce minerals used in making chips came into effect.
Meta, Microsoft Spending Outlook Late Wednesday last week, Meta and Microsoft ( MSFT) announced $37.4 billion in capital spending during the December quarter. While Meta Chief Executive Mark Zuckerberg said it was too early to judge what China AI startup DeepSeek's model implies for future spending on AI, Microsoft said that its spending on AI data centers would slow next year.
Earlier, Zuckerberg indicated data-center spending plans of $60 billion to $65 billion in 2025.
Microsoft announced in December that the company was not "chip-supply constrained." In a Securities and Exchange Commission filing last year, Nvidia disclosed that one customer accounted for 13% of its fiscal first-quarter revenue. UBS analyst Timothy Arcuri believed that the customer was Microsoft.
DeepSeek Hits Nvidia Stock On Jan. 27, Nvidia suffered the biggest one-day market cap loss for any public company on record after The Wall Street Journal reported that the latest large-language model from Chinese AI lab DeepSeek came close to the performance of its American rivals at a fraction of the cost. DeepSeek AI models cost $5.6 million to train compared with $100 million-$1 billion that Dario Amodei, CEO of privately held Antrhopic, noted as the cost last year.
Nvidia shares fell below the 50-day moving average in heavy volume — a sell signal.
A company spokesperson noted that DeepSeek's AI model uses a Test Time Scaling method that relies on other widely available AI models and takes longer to come up with better answers. This method allowed the system to be in compliance with export restrictions, the Nvidia spokesperson said.
Citi analyst Christopher Danely said that the model depends on cloud service providers and is evidence of "continued strong growth in spending in AI."
Nvidia is a top AI stock to watch despite the plunge.
Nvidia Stock: Technology Partner For Stargate Project In January, Trump announced a joint venture called Stargate involving OpenAI, Oracle ( ORCL) and SoftBank ( SFTBY). Together, the companies will invest up to $500 billion in four years to build data centers and other infrastructure for AI applications. Nvidia will be a technology partner for the new venture.
However, Tesla ( TSLA) CEO Elon Musk on Twitter/X cast some doubts on the project and stated that " They don't actually have the money."
Reports stated that SoftBank may invest up to $25 billion in OpenAI.
Nvidia Stock Fund Ownership Funds own 40% of Nvidia's shares outstanding, according to IBD MarketSurge. But going by its Accumulation/Distribution Rating of E, funds aren't necessarily buying shares. The rating measures price and volume action over the last 13 weeks.
Shares fell on Jan. 16 even after Nvidia's partner, chipmaker Taiwan Semiconductor ( TSM), beat estimates for its fourth quarter and gave a strong outlook for AI-chip demand. Analysts say the chip foundry had guided AI revenue to double this year, as demand continued to exceed supply.
On Jan. 15, KeyBanc analyst John Vinh raised concerns over manufacturing yields, which are limiting shipments of Nvidia's liquid-cooled rack systems containing Blackwell chips. The analyst cut the 2026 revenue target from Nvidia's data center business to $185 billion from $200 billion while maintaining an overweight rating and price target of 180.
Nvidia Responds To Export Curbs Shares fell after the Biden administration issued new regulations on chip exports on Jan. 13. Apart from 18 countries, chip exports will be restricted to 50,000 per country.
Reports also stated that countries would need a license when orders exceed 1,700 advanced AI chips. The restrictions will impose control over how "America's leading semiconductors, computers, systems, and even software are designed and marketed globally," Ned Finkle, Nvidia's vice president of government affairs, said in a statement.
Similar to export curbs, a trade war fought with tariffs could hurt foreign sales of U.S. semiconductor companies to some countries.
Oracle ( ORCL) executive Ken Glueck noted that the new rules could reduce the global chip market by 80% for U.S. chip companies, and that "a rule of this consequence on that timetable will turn the U.S. cloud industry upside down."
Elsewhere, HSBC analyst Lee Frank noted concerns over a " supply chain overhang" for Blackwell chips that could hurt Nvidia's ability to deliver another beat-and-raise quarter.
Nvidia's price performance has worsened. The relative strength line, which compares the stock with the S&P 500 index, has dropped. In terms of 12-month price performance, the stock has still beaten 81% of other stocks in Investor's Business Daily's database.
Strong First Quarter Expected Analysts at UBS noted they expect results for the January-ended quarter and the outlook for the April-ending quarter to be strong. Yields for Blackwell have "inflected higher," while Nvidia's product mix is shifting away from Hopper to its newer Blackwell.
Analysts also see revenue streams increasing for the chip leader from original equipment manufacturers as they build inventory.
Meanwhile, Taiwan-based Hon Hai plans to ship out the GB200 rack system that has Blackwell chips earlier than expected, UBS noted. Total revenue from Blackwell is seen hitting $9 billion in the January-ended quarter.
UBS maintained a price target of 185 and a buy recommendation for Nvidia.
$113 Billion Revenue Target Looms After CES On Jan. 6, Nvidia CEO Jensen Huang said the "ChatGPT moment for general robotics" is near, but investors were eager for updates on Nvidia's Blackwell chip ramp-up and early indications for its next chip, Rubin.
Nvidia's data center business is expected to generate $113 billion in revenue for the year that ends next January, according to FactSet — more than the total revenue estimate for any other chip company. That makes its other ventures a sideshow, some say.
Challenging December Spills Into January, February December was a challenging month for Nvidia investors. But the stock faced more headwinds in January, while February is not off to a great start either.
On Dec. 12, news that the Supreme Court had dismissed Nvidia's appeal in a securities fraud lawsuit by shareholders pressured the stock. The 2018 suit was triggered when Nvidia's revenue took a hit amid a crash in cryptocurrencies and sought to investigate how much of its sales depended on digital currency.
Nvidia shares also fell after Broadcom's results showed strong demand for its AI processors. Broadcom competes with Nvidia in chips for data center AI networking gear. It indicated that two large customers were developing their own next-generation AI processors using Broadcom's chips. Broadcom is also designing an AI chip for Apple ( AAPL).
Nvidia shares also fell 2.6% on Dec. 9 amid news that China's State Administration for Market Regulation is investigating whether Nvidia has violated its antimonopoly laws.
But Morgan Stanley analyst Joseph Moore noted that "based on conversations with customers," he anticipates the biggest users of application-specific integrated circuits, or ASICs, will shift back to graphics processing units, or GPUs.
Morgan Stanley Top 2025 Pick Shares gained nearly 4% on Dec. 20 after Moore named Nvidia a "top 2025 pick." But he trimmed his price target on the stock to 166 from 168.
The analyst does not expect delays in Blackwell chip production. Moore said that he expects a slowdown in the older Hopper chip. But he adds that will make more high-end memory chips available for its Blackwell line.
Nvidia's GPUs can be used for several AI tasks. But ASICs that its rivals are focusing on are meant to fulfill a single purpose. Mizuho analyst Jordan Klein noted that while "custom silicon will quickly gain share each year from GPUs, GPUs will be dominant for training purposes."
In November, analysts at Piper Sandler projected a 20% upside for the stock and raised their price target to 175 from 140. Nvidia is positioned to gain most from the increase in the total AI accelerator market. Piper Sandler sees that at $70 billion in 2025.
Melius Research analysts also raised their price target to 185 from 165 and maintained their buy rating.
Stock Market Leader For Nvidia, its earnings growth is its strong point.
The AI chip behemoth continues to be a stock market leader and has an ideal Earnings Per Share Rating of 99, while the stock also shows all-around strength with a Composite Rating of 98.
According to FactSet data, Nvidia ranks first among S&P 500 companies for revenue and earnings growth estimates through 2026.
Analysts expect a compound annual growth rate of 5.7% in sales for the S&P 500. They see 13.8% growth in earnings per share over two years. But they see Nvidia's two-year compound growth reaching 35.5% in sales and 35.1% in earnings per share.
Third-quarter sales came in at $35.08 billion with earnings of 81 cents per share. Analysts polled by FactSet had estimates of 75 cents per share on sales of $33.17 billion. Sales also beat the AI chip leader's outlook of $32.5 billion for the quarter.
Sales nearly doubled from the prior year, when Nvidia reported $18.1 billion in revenue.
Nvidia Stock: A Must-Watch Meanwhile, bullish trends for artificial intelligence make Nvidia a must-watch. In September, consulting firm Bain said the total addressable market for AI hardware and software will grow 40% to 55% annually for at least the next three years.
Demand for Nvidia's next generation graphics processing unit, the GB200, is expected to reach 3 million units in 2026. That compares with 1.5 million for its H100 units in 2023.
New findings show that Nvidia was the most bought stock by retail investors in 2024, as they poured nearly $30 billion into the AI stock for the year as of Dec. 17, according to Vanda Research. That takes the crown from Tesla ( TSLA), which was the most popular stock among retail investors during 2023.
It also replaced Intel ( INTC) in the Dow Jones Industrial Average in November, becoming the fourth Magnificent Seven stock to join the list of blue chips. The others are Apple, Amazon.com ( AMZN) and Microsoft.
IPhone Moment Of AI Nvidia's graphics processing units help accelerate computing in data centers and AI applications.
The company was a pioneer in graphics processors used in such industries as health care, game machines, automobiles and robotics.
In March 2023, generative AI took a leap forward with OpenAI's ChatGPT. According to CEO Huang, Nvidia's AI-capable chips paved the way for the "iPhone moment of AI."
That helped Nvidia turn the tide on its results. It had reported three quarters of declining year-over-year sales. It also showed four quarters of tapering earnings in late 2022 and early 2023.
But then the company achieved record top- and bottom-line growth in the six most recent quarters.
Is Nvidia Stock A Buy? Nvidia is well positioned to weather higher-for-longer interest rates in 2025 than some rivals, according to Kathleen Brooks, research director at brokerage firm XTB, thanks to its high profit margins.
Looking at chart signals and technical measures can help investors assess whether Nvidia stock is a buy now.
The stock has fallen below its 50-day moving average and remains below its 200-day moving average. Nvidia stock has to retake the 50-day line and build a base before it becomes a buy again. |
