TLDR:
- Nvidia stock has dropped 16% from its January peak, now trading at $115.99
- CEO Jensen Huang believes new AI “reasoning” models could increase GPU demand 100-fold
- Fiscal 2025 delivered record $130.5 billion revenue, up 114% from previous year
- Major tech companies plan to spend $65-100 billion each on AI infrastructure in 2025
- Nvidia stock currently trades at a significant discount to its historical valuation
Nvidia (NVDA) stock has fallen 16% from its January high of nearly $150. The decline was triggered by news that Chinese AI startup DeepSeek had developed methods to train advanced AI models at a fraction of the cost.
This innovation raised concerns about potential reduced demand for Nvidia’s powerful data center GPUs. These chips currently dominate the AI development market.
However, CEO Jensen Huang recently made comments suggesting these new AI developments could actually boost GPU demand. His statements point to a potentially strong year ahead for the company.
Nvidia just completed its best fiscal year ever. For fiscal 2025 (ended January 26), the company reported record revenue of $130.5 billion. This represents a 114% increase from the previous year.
The data center segment was the star performer. It generated $115.1 billion, jumping 142% year-over-year. This growth highlights the continued strong demand for AI computing resources.
Nvidia’s new Blackwell GB200 GPUs began shipping in commercial quantities during the fourth quarter. They generated $11 billion in sales, exceeding management’s expectations.
This launch represents the fastest product ramp-up in Nvidia’s history. The Blackwell chip is revolutionary because it can perform AI inference up to 30 times faster than its predecessor, the H100.
Inference is how AI models generate responses using live data and prompts. Faster inference speeds translate to quicker responses in applications like chatbots.
Major tech announce massive AI infrastructure investments
Major tech companies have announced massive AI infrastructure investments for 2025. Meta Platforms plans to spend up to $65 billion, while Alphabet could invest $75 billion.
Microsoft is likely to allocate over $80 billion, and Amazon has budgeted upward of $100 billion. Not all of this spending will go to Nvidia, but it indicates strong industry momentum.
The DeepSeek situation initially worried investors because of its efficient training methods. The Chinese startup reportedly trained its V3 model for just $5.6 million, compared to the $20+ billion OpenAI has spent.
DeepSeek achieved this partly through “distillation,” using existing advanced models to train smaller ones. This approach requires fewer resources than traditional training methods.
However, Huang noted that the industry is shifting toward “reasoning” models. These models focus less on traditional training and more on inference workloads.
During Nvidia’s recent investor call, Huang stated that reasoning models can consume 100 times more compute power than previous generations. Future models might require thousands or even millions of times more computing resources.
This shift toward reasoning models – exemplified by DeepSeek R1, xAI’s Grok 3, Anthropic’s Claude 3.7 Sonnet, and OpenAI’s GPT-4o series – could drive substantial new demand for Nvidia’s chips.
Based on its fiscal 2025 earnings per share of $2.99, Nvidia stock currently trades at a price-to-earnings ratio of 42.5. This represents a 28% discount to its 10-year average P/E of 59.3.
Wall Street analysts project the company could generate $4.49 in EPS for fiscal 2026. This would place the stock at a forward P/E ratio of just 27.7.
For Nvidia to maintain its current P/E ratio over the next 12 months, the stock would need to rise by 53%. To return to its 10-year average P/E, it would need to climb by 114%.
With Huang’s comments about dramatically increased compute requirements for new AI models, investors may soon return to Nvidia stock. This could drive substantial growth in the coming year.
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