Despite a slide that has taken $500 billion from its market cap, the average Nvidia Corp. (NASDAQ: NVDA) analyst’s price target, among 63 who cover it, is $174, about 45% above where the stock trades today. Wall Street has not given up on the trigger of the massive rally that has taken the price up 1,900% in five years.
The reasons for the optimism are a bit convoluted. China’s new DeepSeek AI software cost about $7 million to create. That compares to $100 million for a comparable product from OpenAI. However, it appears that the Chinese may have made misleading statements. DeepSeek’s creators could have gotten a large number of Nvidia’s most powerful chips from Singapore. President Trump’s nominee for Commerce Secretary, Howard Lutnik, commented “They bought a huge number of Nvidia chips, found a way to get around the restrictions, and now they are using them in their DeepSeek AI model.” If so, Nvidia’s powerful chip franchise may be protected.
Another argument is that the tens of billions of dollars pumped in AI server farms by tech companies, including OpenAI, Microsoft Corp. (NASDAQ: MSFT), Meta Platforms Inc. (NASDAQ: META), and a group put together by the White House, made the right decision. However, this theory may be hard to prove. Nvidia said that DeepSeek’s advance will mean that the AI world’s growth is exploding and that the need for its chips will continue to surge as well. If that is not true, the world’s largest tech companies and “smartest” financiers have made terrible miscalculations.
The proof of which theory is correct may come as soon as Nvidia announces its earnings and its forward guidance. The consensus revenue estimate for the most recent quarter is $38.3 billion. That would be up 73% from the same quarter the year before. It is too early for DeepSeek to have affected this number, but any hint the revenue in the year ahead is “soft” will send the shares into a nosedive.
Most Nvidia analysts are going to look like either wizards or fools.
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