Why Nvidia's Stock Is a Smart Buy Amid Recent Dip

Published Date : 06/02/2025 

Nvidia, a leader in advanced GPUs, has faced a significant stock dip following the DeepSeek announcement. However, this could be an excellent opportunity for investors to buy the dip. Here are three compelling reasons why. 

The popular phrase “reports of my death are greatly exaggerated,” an adaptation of a famous Mark Twain quote, succinctly describes Nvidia (NVDA) after the DeepSeek bombshell sank its stock by more than 20%.

Despite the dip, Nvidia's stock is still over 16% off its recent high.

Is this a warning sign, or a golden opportunity to buy at a lower price? Here are three reasons why Nvidia remains a smart investment.

1.

Demand Concerns Look OverblownNvidia's flagship product, advanced graphics processing units (GPUs), are essential for both visual elements in computers and data centers, where the demand is particularly high.

Big tech companies like Meta Platforms (META), Alphabet (GOOGL), Elon Musk’s xAI, and ChatGPT-developer OpenAI rely heavily on Nvidia GPUs to train their AI models.

Training these models requires thousands of GPUs.

For instance, Meta’s Llama 3.1 reportedly used 16,000 GPUs, and xAI’s Colossus data center utilizes 100,000.

Chinese AI company DeepSeek claimed it created a chatbot rivaling ChatGPT using just 2,000 Nvidia chips for $6 million.

This claim sparked market panic, with speculation that other tech giants might need fewer Nvidia GPUs.

However, is this claim credible?

Industry experts and insiders believe DeepSeek likely uses around 50,000 Nvidia GPUs, and the actual cost is around $500 million.

DeepSeek’s minimization could be for publicity and geopolitical reasons, as the U.S.

imposes strict export controls on chips to China.

In essence, the demand for Nvidia’s powerful GPUs from big tech is likely to remain strong.

2.

Spectacular ResultsNvidia’s fiscal year 2024 (ending January 2024) was nothing short of spectacular.

Sales surged by 125%, reaching $61 billion, and non-GAAP operating income hit $37 billion, achieving an impressive 61% margin.

By just the third quarter of fiscal 2025, Nvidia had already surpassed these numbers.

The non-GAAP operating margin widened to 67%, indicating strong demand and willingness among customers to pay premium prices.

This translated into substantial free cash flow and bottom-line net income.

Through the third quarter of fiscal 2025, net income reached $51 billion, compared to $17 billion for the same period the previous year.

Free cash flow ballooned to $45 billion in Q3 of fiscal 2025, up from $27 billion for the entire fiscal 2024.

3.

Improved ValuationValuing Nvidia is challenging due to the uncertainty around sustained growth.

However, the rapid expansion of AI and data center investments suggests that the tailwinds will continue for many years.

According to Statista, the global AI market is forecasted to reach $244 billion by 2025 and $827 billion by 2030.

Nvidia’s GPUs are crucial to this growth.

Many investors previously considered Nvidia overvalued, but the recent sharp decline offers a better entry point.

The forward price-to-earnings (P/E) ratio has fallen well below historical averages.

The earlier declines in early 2023 and 2024 were also excellent times for long-term investors to buy the stock.

In conclusion, the DeepSeek news, while interesting, is not a death knell for Nvidia.

The claims appear exaggerated, and the company’s results and valuation now make it an attractive investment. 

Frequently Asked Questions (FAQS):

Q: What caused the recent drop in Nvidia's stock?

A: The recent drop in Nvidia's stock was primarily due to claims made by Chinese AI company DeepSeek, which suggested that it could create a chatbot rivaling ChatGPT using significantly fewer Nvidia GPUs and at a lower cost than previously thought.

Q: Why are Nvidia's GPUs important for AI and data centers?

A: Nvidia's GPUs are crucial for AI and data centers because they provide the computing power needed to train complex AI models. These models require thousands of GPUs to process vast amounts of data efficiently.

Q: What were Nvidia's financial results in fiscal year 2024?

A: In fiscal year 2024, Nvidia reported sales of $61 billion, a 125% increase from the previous year, and non-GAAP operating income of $37 billion, achieving an impressive 61% margin.

Q: How has Nvidia's stock valuation changed recently?

A: Nvidia's forward price-to-earnings (P/E) ratio has fallen well below historical averages, making the stock more attractively valued for potential investors.

Q: What is the forecast for the AI market, and how does Nvidia fit into this?

A: The global AI market is forecasted to reach $244 billion by 2025 and $827 billion by 2030. Nvidia's GPUs are essential for the growth of this market, making the company a key player in the AI industry. 

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