The stock market appears to be in the middle of quite the storm as of late. In the final days of January, a Chinese start-up called DeepSeek sent shock waves around the world after it released an artificial intelligence (AI) model similar to ChatGPT — and claims to have trained its AI with legacy architectures that aren’t widely leveraged by U.S. developers.
While technology stocks in general have been more volatile since DeepSeek’s arrival, none has taken a hit as hard as Nvidia (NASDAQ: NVDA). Investors are panicking that Nvidia’s newer chipware may not be as much of a necessity, given DeepSeek’s claims.
Although the uncertainty surrounding Nvidia’s future prospects is disorienting, some of the company’s biggest partners have been dropping clues as to how DeepSeek is influencing their own AI roadmaps. I’ll analyze what these trends are and assess how they might impact Nvidia.
Nvidia makes its fortune primarily through its compute and networking business, which sells advanced chipsets called graphics processing units (GPUs). GPUs are integral for generative AI applications, and are primarily housed in large data centers.
While DeepSeek claims to have built its AI using Nvidia’s old H800 GPUs, it’s been difficult to verify how accurate that is. Nevertheless, all of Nvidia’s “Magnificent Seven” peers have reported earnings for the full calendar year 2024, and there is a common thread stitching their broader AI fabric together.
Microsoft kicked things off by announcing the company will be spending $80 billion this year on data centers and other AI infrastructure projects. Meta Platforms followed up with its own aggressive spending plans — hinting that the company could see capital expenditures (capex) up to $65 billion this year. Lastly, Alphabet and Amazon are projected to spend an estimated $180 billion combined on AI capex this year.
On the surface, big tech’s rising capex plans this year should be seen as a positive thing for Nvidia. However, when Nvidia reports earnings on Feb. 26, there is one thing in particular I think investors need to be laser-focused on.
Investors should listen carefully to management’s commentary as it relates to the spending from big tech I outlined. While Nvidia isn’t going to capture all of this spend, investors should still be able to get a glimpse into how much capex the Magnificent Seven will be allocating toward Nvidia.
