With shares up less than 3% year to date as of the time of this writing, Nvidia‘s (NASDAQ: NVDA) rocket ship rally has ended. And there are many reasons why investors are becoming more cautious about the stock.
Generative AI software is still deeply unprofitable. And the emergence of reportedly cheaper open-source rivals from China could undermine top Nvidia customers like OpenAI and Meta Platforms. Let’s dig deeper to see if shares in this tech giant are a buy, sell, or hold in 2025 and beyond.
Nvidia is expected to report its fourth-quarter and full-year earnings after the market closes on Feb. 26. This report will give investors a clearer picture of its growth prospects and the health of the AI industry as it grapples with challenges like high spending and low profitability on the software side (OpenAI lost $5 billion in 2024).
Management seems optimistic, guiding for around $37.5 billion in revenue, representing a 70% year-over-year growth rate compared to the prior-year period. This would be a deceleration in growth compared to last year’s revenue surge of 265%, but it is impressive for a $3.4 trillion company.
For comparison, fellow tech giant Amazon posted top-line growth of just 10% in its most recently reported quarter.
Nvidia’s dominance relies on its ability to release new and improved graphics processing units (GPUs) for running and training AI models. These products are costly (the company’s latest Blackwell chips are expected to cost between $30,000 and $40,000 per unit), but they offer such dramatic performance improvements that they may still provide operational cost and energy savings compared to older chip designs.
The release of an open-source large language model (LLM) called DeepSeek R1 has shaken Nvidia’s growth thesis. The Chinese app reportedly can outperform industry leader ChatGPT on key tasks despite being reputedly developed for just $5.6 million using Nvidia’s much less advanced H800 chips, built to comply with U.S. export restrictions to China.
If companies can create cutting-edge LLMs using less-advanced chips, this could undermine the market for Nvidia’s most advanced hardware, potentially hurting its growth and margins. That said, there may be some good news for Nvidia and its shareholders.
For starters, Nvidia’s fiscal fourth-quarter report contains data from the three months ending in January 2025. DeepSeek’s R1 was released late in the last month of the period and probably won’t materially impact guidance.
