The recent sell-off in Nvidia (NASDAQ:NVDA) stock, triggered by concerns over Chinese startup DeepSeek’s breakthrough in the AI space, is a buying opportunity ahead of the chipmaker’s earnings report due later this month, according to Evercore ISI analysts, News.Az reports citing Investing.
Nvidia shares lagged behind the S&P 500 by 9% over the past month as investors rushed to minimize their risk exposure, concerned about DeepSeek's effect on overall AI demand.
Moreover, a potential shift of AI compute cycles from Nvidia's GPUs to ASICs, and delays in Blackwell's release, also added to the negative sentiment.
However, citing its channel checks with senior AI engineers at major hyperscalers, Evercore notes that while DeepSeek offers cost improvements, these are seen as “evolutionary rather than revolutionary.”
Lower costs per compute cycle or cost per token are expected to drive increased demand for AI tokens, leading to more accurate models and faster development of multi-mode models that train on various data types.
Regarding the rise of ASICs, the investment bank believes Nvidia will likely remain the preferred platform due to its robust software ecosystem and community support, placing it years ahead of competitors like AMD (NASDAQ:AMD) and AWS.
According to Evercore, industry experts believe that Nvidia's software advancements, such as NIMS and NeMo, will continue to drive demand for its GPUs. These tools offer enterprises flexibility between cloud vendors and on-prem deployments, as well as ease the development and deployment of Large Language Models (LLMs).
Moreover, innovations like LiquidAI, which train models during the inference process, underscore the need for programmable platforms like Nvidia's GPUs.
One expert “was of the view that NVDA would likely develop the most efficient inferencing platforms,” Evercore analysts led by Mark Lipacis said in a note.
With respect to the Blackwell delays, the consensus is that the ramp-up has been pushed to mid-2025 from the first half of 2025.
Though some hyperscalers may delay purchases, demand for Nvidia's GPUs remains high, and in the absence of Blackwell's B100, customers are expected to purchase the current H100 model instead.
Overall, Evercore said its long-term thesis, first presented eight years ago and recently reiterated, supports Nvidia's position in the market.
Trading at a next twelve months (NTM) price-to-earnings (P/E) ratio of 29x, Nvidia stock is currently in the lower half of its 8-year range of 20x-65x and below the 8-year median of 36x.
“Our call is centered around NVDA JanQ-25 EPS print on February 25th. We view the biggest risk to our call that pushout of Blackwell could translate to an air-pocket of shipments by NVDA,” analysts said.
“Longer term, we view the risk of custom-AI chips taking share as the biggest risk, however, the recent checks suggest that this risk is nominal, at least in the near-term,” they concluded.
