NVIDIA's Dip Buyers Cautious Amid AI Spending Concerns

NVIDIA Corp. investors have traditionally seized buying opportunities when stock prices dip. However, sentiment has shifted since the DeepSeek-fueled sell-off, indicating persistent fears of a slowdown in AI spending.

DeepSeek's Impact

NVIDIA shares plummeted 17% in a single day, eroding $590 billion in market capitalization, after DeepSeek, a Chinese AI startup, claimed superior performance at a lower cost. The stock has partially recovered but remains over 11% below its January record high. This despite the fact that key customers Amazon, Alphabet, Meta, and Microsoft plan to invest $300 billion collectively in capital expenditures this year.

Dip Buyers Hesitant

Dip buyers abstained until NVIDIA shares had fallen over 21% from their peak, a rare occurrence in recent years. This signals investor caution about AI spending, particularly given DeepSeek's claim to use fewer chips for its AI model.

"There's an underlying concern about the end of the party, and I think DeepSeek was a wake-up call that it may come faster than people think," said Gene Munster, managing partner and cofounder of Deepwater Asset Management. "The sentiment shifted from an impenetrable story to one that could change drastically."

Earnings Preview

The negative sentiment poses a challenge for NVIDIA's earnings on February 26. In recent years, quarterly reports have been met with anticipation, with shares trading near record highs. This time, the company must convince investors of its continued growth potential.

Valuation and Sentiment

The selloff has made NVIDIA shares more affordable for some investors, currently trading at 30 times forward earnings compared to a five-year average of 40 times. However, the absence of significant dip buyer activity indicates precariousness ahead of the earnings report.

"The negative stock reaction has become the story, and it frames the biggest risk going forward," wrote Morgan Stanley analysts led by Joseph Moore.

Cost Concerns

In addition to AI spending concerns, investors are worried about NVIDIA's Blackwell chips. Manufacturing challenges and supply constraints have delayed the rollout. Despite the company's assertion that Blackwell will drive growth, cost concerns persist.

"People were already nervous about Blackwell," said Ivana Delevska, chief investment officer at SPEAR Invest. "That's probably why the stock isn't bouncing until they report."

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