The popular phrase "reports of my death are greatly exaggerated," an adaptation of a famous Mark Twain quote, is a terrific way to describe Nvidia (NVDA +2.71%) after the DeepSeek bombshell (more on this below) sank its stock more than 20%. The stock is still more than 16% off its recent high.
Is this a major warning sign or a tremendous opportunity to buy the dip? Nvidia is far from finished powering the world of artificial intelligence (AI) or being relegated to obsolescence. Here are three reasons to snatch up the stock now.
1. Demand concerns look overblown
You probably already know that Nvidia's gold mine product is its advanced graphics processing units (GPUs). Computers use GPUs for their visual elements. However, the tremendous demand comes from data centers and artificial intelligence (AI). Big tech companies like Meta Platforms (META +0.40%), Alphabet (GOOGL +2.81%), Elon Musk's xAI, ChatGPT-developer OpenAI, and many others use Nvidia GPUs to train their AI models.
Training AI models requires thousands of GPUs. For instance, Meta's Llama 3.1 reportedly used 16,000, and xAI's Colossus data center uses 100,000. Chinese AI company DeepSeek claims it created a chatbot that rivals ChatGPT using just 2,000 Nvidia chips for just $6 million. The market panicked as Wall Street speculated that this breakthrough meant other big tech companies wouldn't need nearly as many Nvidia GPUs. But is DeepSeek's claim true? Remember, extraordinary claims require extraordinary evidence -- many are not convinced.
NASDAQ: NVDA
Key Data Points
Some industry billionaires and insiders believe that DeepSeek actually has 50,000 Nvidia GPUs, and the actual cost of its model is $500 million. DeepSeek may have exaggerated its success for publicity but also for geopolitical reasons. The U.S. limits the chips it lets China buy through export controls, so DeepSeek's minimization makes sense.
The bottom line is that it's highly likely big tech will continue spending billions on Nvidia's powerful GPUs.
2. Spectacular results
Let's check out some illuminating charts for the second and third reasons. Nvidia had an incredible fiscal year 2024 (which ended January 2024). Sales grew 125% to $61 billion, and non-GAAP (adjusted) operating income hit $37 billion, an astounding 61% margin. Nvidia blew past these numbers through just three quarters of fiscal 2025, as shown below.
Image source: Nvidia.
The non-GAAP (meaning not in accordance with generally accepted accounting principles) operating margin widened to 67%. This increase indicates that demand is strong and that Nvidia's customers are willing to pay high prices. The revenue translates to free cash flow and bottom-line net income. Net income hit $51 billion through the third quarter of fiscal 2025, compared to $17 billion for the same period in the previous year, while free cash flow ballooned to $45 billion through Q3 of fiscal 2025 compared to $27 billion for the entire fiscal 2024.
3. Improved valuation
It isn't easy to put a definitive value on Nvidia because it's not clear how long it can sustain this spectacular growth. AI and data center investments are ramping up swiftly, and the tailwinds will likely last for many years. Statista's global forecast is for the AI market to hit $244 billion in 2025 and $827 billion by 2030. Nvidia's GPUs are critical to this expansion.
Many investors believed the stock was overvalued despite the growth potential; however, the recent sharp decline offers a much better entry point. As you can see below, the forward price-to-earnings (P/E) ratio declined well below recent historical averages.
NVDA PE Ratio (Forward) data by YCharts
The earlier declines shown in the chart in early 2023 and early 2024 were also excellent times for long-term investors to purchase the stock.
The DeepSeek news is interesting but hardly a death knell for Nvidia. The claims appear to be exaggerated. Meanwhile, Nvidia's results are incredible, and the valuation looks reasonable once again.
