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DeepSeek's Breakthrough Impacts Nvidia, Amazon, and Alphabet

Market Shock: Nvidia's downfall followed DeepSeek's AI triumph. The report suggests that Nvidia's share decline may lead to increased demand for its GPUs in the future due to new efficiencies in AI training.

Date: 
AI Rating:   6

Market Reaction and Investor Sentiment
DeepSeek's AI breakthrough and its low training cost created a significant stir in the market, especially impacting Nvidia's stock, which experienced a 17% drop, erasing $600 billion in market value. This substantial loss set the record for the largest single-day loss in U.S. history, underscoring a negative sentiment among investors regarding the AI spending strategies of U.S. companies and leading to second-guessing their operational expenditures.

Nvidia and Earnings Projections
Despite the current downturn, Wall Street remains optimistic about Nvidia's future earnings. The consensus indicates that Nvidia's adjusted earnings are expected to grow at an impressive rate of 52% annually through fiscal 2026. This projection could portray Nvidia as undervalued at a valuation of 50 times adjusted earnings if these expectations are met. However, there is substantial pressure on Nvidia to live up to these high expectations, and any shortfall might severely impact its stock price.

Impact of AI Training Techniques
The report indicates that improvements in AI training efficiency may ultimately increase the demand for Nvidia's GPUs as more companies embrace AI solutions, potentially counteracting any short-term negative impact from competition like DeepSeek. Analysts are divided about DeepSeek's claims regarding its infrastructure costs, with speculation that they did not disclose the full extent of their investments possibly involving Nvidia's advanced chips, which could imply a stronger demand for Nvidia's products in the long term.

Capital Expenditure Trends at Amazon and Alphabet
Amazon and Alphabet have signaled aggressive spending on AI infrastructure, planning to raise capital expenditures significantly. Amazon forecasts its spending to exceed $100 billion in 2025, while Alphabet anticipates a rise to $75 billion. This increased spending could potentially benefit Nvidia amid a growing demand for their GPUs, as highlighted by statements from both companies’ leadership regarding their strategic shift toward inference as training costs decrease.

Stocks:  NASDAQ: NVDA NASDAQ: AMZN NASDAQ: GOOGL