Last week, Chinese startup DeepSeek published a research paper in which it claimed to have trained a large language model rivaling the performance of leading U.S. models, while spending much less money than U.S. companies. Shares of Nvidia (NVDA +1.73%) fell sharply on the news because of its dominant position in artificial intelligence (AI) accelerator chips.
However, Wall Street has some good news: Several analysts thinks the efficient training techniques DeepSeek employed may actually benefit Nvidia by reducing costs and accelerating AI adoption. For instance, software companies may be able to integrate AI features into applications without spending as much money to train models. But running the applications would still require powerful chips, which could create more demand for Nvidia GPUs.
Importantly, several Wall Street analysts have updated or reiterated their forecasts since DeepSeek published its research paper last week, and they all see upside in Nvidia stock from its current price of $128 per share.
- Gil Luria at D.A. Davidson set his target price at $135 per share, implying a 5% upside.
- Joseph Moore at Morgan Stanley set his target price at $152 per share, implying a 18% upside.
- Atif Malik at Citigroup set his target price at $175 per share, implying a 36% upside.
- Stacy Rasgon at Bernstein set his target price at $175 per share, implying a 36% upside.
- C.J. Muse at Cantor Fitzgerald set his target price at $200 per share, implying a 56% upside.
In addition, Dan Ives at Wedbush Securities recently told CNBC the Nvidia sell-off that followed DeepSeek's announcement creates a "golden buying opportunity." I completely agree with that assessment, especially because President Trump wants to cut corporate taxes and boost investments in AI infrastructure.
NASDAQ: NVDA
Key Data Points
President Trump wants to reduce the corporate tax rate
President Trump during his first term signed the Tax Cut and Jobs Act in 2017. That legislation reduced the federal corporate tax rate from 35% to 21%, which led to a record-breaking increase in stock buybacks in 2018, according to Goldman Sachs. And companies have continued to repurchase shares more quickly than in previous years.
Trump during his most recent presidential campaign proposed lowering the corporate tax rate even further for companies that manufacture goods domestically, this time to a 90-year low of 15%. In theory, that would boost corporate profit margins, potentially leading to even more aggressive stock buybacks. I think Nvidia would lean into that opportunity.
The chipmaker spent nearly $13 billion on stock buybacks in the third quarter of calendar year 2024, according to data from S&P Global. Only two S&P 500 companies allocated more money to share repurchases: Apple spent $25 billion and Alphabet spent $15 billion. Importantly, Nvidia's Board of Directors has already given authorization for another $46 billion in buybacks.
Here is the big picture: If the Trump administration does cut the corporate tax rate, letting Nvidia lean into buybacks, its earnings per share, currently forecast to increase at 39% annually in the next two years, would probably grow faster than Wall Street anticipates. And upward revisions to earnings estimates tend to drive share price appreciation.
President Trump speaking with reporters. Image source: Official White House Photo by Shealah Craighead.
President Trump recently announced the Stargate Project
President Trump last week announced the Stargate Project, which aims to maintain American leadership in artificial intelligence with up to $500 billion in private-sector investments in U.S. infrastructure during the next four years.
Stargate is a joint venture involving OpenAI and SoftBank. The former assumes operational responsibility and the latter assumes financial responsibility. They plan to build 20 U.S. data centers, each a half-million square feet and optimized for AI. The first data center is already under construction in Texas, and other potential sites are being evaluated.
Nvidia graphics processing units (GPUs) are the industry standard in accelerating AI tasks, so the company is likely to provide all the necessary GPUs. Indeed, an OpenAI press release states: "As part of Stargate, Oracle, Nvidia, and OpenAI will closely collaborate to build and operate this computing system."
Details are still lacking, but Ben Reitzes at Melius Research estimates Nvidia could collect over $100 billion in Stargate spending. That theoretical revenue has not been factored into Wall Street's estimates, meaning the Stargate Project is yet another reason Nvidia's earnings may grow faster than anticipated in the years ahead.
