Nvidia and other chip stocks experienced a significant sell-off towards the end of January due to the launch of Chinese AI company Deepseek. Since then, Nvidia has seen a strong recovery as optimism in the AI sector remains active.
DeepSeek Pressure
Nvidia has been pressured in recent weeks by several factors related to DeepSeek, the Chinese AI software that rivals Open AI’s ChatGPT. Its launch proved to the world that it’s possible to train models cheaper with ASIC chips instead of Nvidia’s GPU.
Those breakthroughs sparked fears that chip clients wouldn’t need as many Nvidia graphics processing units or would instead use application-specific integrated circuits from other competitors. ⁽¹⁾
Nvidia declined 17% after Deepseek’s launch. The announcement caused investors to question whether hyper-scale cloud computing providers would pause their costly AI data center structure.
Nvidia Leads the Way Again
As the sell-off faded, semiconductor stocks rebounded, with Nvidia leading the rally, despite being pressured by OpenAI’s announcement on reducing its reliance on Nvidia. ⁽²⁾
While the announcement brought severe competition to Nvidia chips, the stock rose. Additionally, the next-generation AI application rollouts by hyper-scalers and cloud providers require huge data center upgrades through investments that keep Nvidia essential for powering state-of-the-art artificial intelligence systems. ⁽³⁾
Another factor behind Nvidia’s rally is Taiwan Semiconductor Manufacturing Company’s strong financial performance, which reported strong earnings in late January. The company also reported $8.93 billion in sales for January, a 36% increase from the year prior. ⁽⁴⁾
Nvidia’s rally was also linked to big spending commitments from tech companies that fueled the rebound in tech stocks. Between them, Amazon, Google-parent Alphabet, Microsoft, and Meta contributed around $325 billion in capital expenditures in their recent earnings reports, with much of that to be spent on AI infrastructure. ⁽⁵⁾
Nvidia also received several analyst upgrades. Evercore ISI upgraded the chipmaker to their “tactical outperform” list ahead of Nvidia’s earnings report on February 26 as a potential catalyst for the stock. ⁽⁶⁾
Evercore believes Nvidia retains a notable advantage in artificial intelligence computing despite increasing competition, especially among large-scale cloud infrastructure providers. Its analysts project Nvidia to be five to ten years ahead of rivals like AMD and Amazon Web Services. ⁽⁷⁾
Trade War Effects
Nvidia and other chip stocks have recently experienced volatility due to tariff-related developments. The US government’s announcement of increased tariffs on semiconductor imports, especially from Taiwan, has raised concerns about higher production costs for Nvidia, which relies on Taiwanese manufacturers like TSMC for chip production.
The Trump administration is also considering further tightening export controls on NVIDIA’s chips to China, specifically targeting the H20 series designed for the Chinese market. These restrictions could limit Nvidia’s access to the Chinese market, further impacting its stock performance. ⁽⁸⁾
