Is Nvidia (NVDA +1.68%) in trouble? It's a question many investors have been asking after shares tumbled more than 20% from recent highs.
Today, let's examine what has happened with Nvidia and whether another stock might be the smart choice for AI investors in 2025.
Image source: Getty Images.
How DeepSeek challenges the Nvidia thesis
A good rule of thumb for investing is to always have a thesis -- a rationale for why you believe a stock will deliver value over the long term.
For Nvidia, the most widely accepted thesis explaining the rapid rise of its stock is that the company will be the engine behind the AI boom. The AI revolution will require millions of GPUs, and Nvidia will be selling many of them, generating hundreds of billions in revenue and profits.
It's a solid thesis, and one that I share. However, the emergence DeepSeek, which was developed in China, seems to undercut that thesis. Specifically, its designers claim that it took only a fraction of the computing power to train their model, and roughly $5.6 million.
If those claims are accurate, it would appear that American companies are spending far more than necessary on Nvidia GPUs, thus the thesis that its stock would come crashing down.
Why Nvidia investors shouldn't panic
First of all, I do not believe DeepSeek undermines the investment thesis for Nvidia.
Part of the reason is that I view any news coming out of China -- particularly as it relates to AI -- with a healthy amount of skepticism. China is America's great geopolitical rival, and propaganda and misinformation are used by great powers to further their ends.
Moreover, since the U.S. government placed export restrictions on certain Nvidia GPUs, there are various parties who may want to obscure which GPUs were used to train the DeepSeek model.
What's more, an analysis from the research company SemiAnalysis noted that the cost to train the DeepSeek model was likely $500 million, almost 100 times more than what its designers reported.
Therefore, in my view, there's no good reason to forget Nvidia stock right now. Nevertheless, some investors may want to trim back their holdings or simply move on. And in that case, my suggestion would be to check out Palantir Technologies (PLTR +4.12%).
Why Palantir is the next great AI company
For those who follow AI stocks closely, Palantir is one of the big names. However, for the average investor, it is far from an iconic company. Yet it's already a corporate giant.
NASDAQ: PLTR
Key Data Points
As of this writing, Palantir's market cap is $241 billion. That makes it more valuable than McDonald's, AT&T, and American Express, to name just three legendary U.S. companies. Palantir is now the 32nd-largest American company overall, and it has all happened in a flash. A year ago, it wasn't even part of the S&P 500.
So, why is Palantir stock riding such a hot streak? The answer is that it aims to do something Microsoft did in the 1980s: become the operating system of the next technological revolution.
The company operates an AI-powered platform that can analyze an organization's data and drive impressive efficiency. It takes the promise and power of AI hardware and puts it to practical use.
As a result, its fundamentals are near-perfect. In its most recent quarter (ending on Dec. 31, 2024), Palantir blew away expectations, highlighted by the following:
- Revenue increased 36% year over year to $828 million.
- Overall customer count grew 43%.
- Adjusted free cash flow rose to $517 million.
The company continues to bring in new clients that are eager to use its AI platform. In turn, management provided upbeat guidance that came in well ahead of expectations, fueling another big increase in Palantir's stock. Shares are up more than 500% over the last 12 months.
To close, I still believe in Nvidia's thesis. I think the company is well positioned to benefit from the AI revolution for many years to come. However, for investors who are looking for another stock that may have even more upside than Nvidia, I would consider Palantir Technologies. Like Microsoft before it, the company could be a decades-long winner in the making.
