AI Chip Market Shaken: AMD and Nvidia Stocks Plunge

Market Shake-up: AMD and Nvidia Stocks Take a Hit. A new open-source AI model from China's DeepSeek leads to a downturn for major AI chip manufacturers, raising concerns over future revenues and market positioning for AMD and Nvidia.

Date: 02-02-2025

AI Rating: 5

Earnings and Revenue Analysis
AMD's revenue for the first three quarters of the year reached $18 billion, showing a 10% annual growth. Additionally, its data center revenue grew by an impressive 107% year over year, which now constitutes 48% of its overall revenue, up from last year's 25%. Despite challenges in its gaming and embedded segments, which saw declines of 58% and 38% respectively, the overall revenue picture indicates potential recovery and stabilization in the future.

Nvidia's Performance
Conversely, Nvidia's revenue soared to $91 billion for the first three quarters of fiscal 2025, marking a remarkable 135% increase, predominantly driven by the data center segment's performance. However, there are emerging concerns about the sustainability of this growth, especially in light of the competitive threat posed by DeepSeek's developments. Investors must consider the cyclical nature of the chip industry, which could pressure Nvidia's pricing and revenue in the upcoming quarters given the potential shift in demand for less advanced AI accelerators.

Profit Margins and Pricing Power
While AMD has demonstrated pricing power with its advanced AI accelerators, the question remains as to how increased demand for less advanced models might influence future revenues. Nvidia, on the other hand, has benefited from premium pricing on its top-tier AI accelerators. However, this is susceptible to change if demand begins to decline, potentially impacting their profit margins negatively and requiring price adjustments.

Comparative Outlook
In summary, while both companies face a challenging landscape due to the DeepSeek development, AMD appears to offer a more attractive investment profile currently, with lower valuations and better growth prospects in its data center segment. Nvidia's high valuation ratios juxtaposed with the uncertainty surrounding its competitive advantage may suggest risks ahead, inviting caution from investors.

Stocks: NASDAQ:AMD NASDAQ:NVDA