Market Shaken as AI Chip Competition Heats Up with DeepSeek

Market Shaken: AI chip stocks like AMD and Nvidia are facing significant pressure following DeepSeek's breakthrough in large language models, creating uncertainty in their revenue streams.

Date: 02-02-2025

AI Rating: 5

Impact on Advanced Micro Devices (AMD)
AMD's data center revenue has shown remarkable growth, reaching 107% on a yearly basis. This segment now represents 48% of AMD's total revenue, an increase from 25% in the previous year. Despite the overall growth, AMD has been impacted by declines in its gaming and embedded segments, which dropped 58% and 38% respectively. This situation means that while AMD is experiencing some positive momentum with its data center revenue, it needs these gains to offset the losses in other areas.

Impact on Nvidia
Nvidia's revenue has grown an astounding 135% in the first three quarters, driven mainly by demand from its data center segment. However, concerns arise from the competitive landscape shifting due to DeepSeek's developments. If demand falls for Nvidia's premium products, it may result in pricing pressure that could adversely affect revenue growth. The 20% decline in Nvidia shares reflects this uncertainty. Additionally, Nvidia's high P/E ratio of 50 indicates that, despite its current performance, it also comes with significant risk, especially amidst market disruptions.

Potential Stock Price Effects
With AMD's forward P/E ratio at 23, there could be a growing interest among investors seeking value stocks. In contrast, Nvidia's elevated price-to-book ratio of 43 puts pressure on its valuation amid uncertainty. The changes in revenue dynamics for both companies could significantly impact stock prices, with AMD potentially benefiting from increased interest while Nvidia could face challenges in maintaining its current pricing structure.

Stocks: NASDAQ:AMD NASDAQ:NVDA