OpenAI commercially launched ChatGPT on Nov. 30, 2022. In my eyes, that date represents the dawn of the ongoing artificial intelligence (AI) revolution. For much of the last two years, no other company has witnessed such an epic rise as Nvidia (NVDA +2.43%).
Between Nov. 30, 2022 and Jan. 24, 2025, shares of Nvidia soared by 743% -- adding nearly $3 trillion in market value to the company. This meteoric rise captivated the investment world, inspiring investors to plow into Nvidia stock at all costs (literally).
As is often the case in situations like these, investors begin to only consider one side of the story -- namely, that the stock in question will continue rising because nothing bad could possibly happen. But as seasoned investors are well aware, the capital markets always have something up their sleeves.
In late January, a Chinese start-up called DeepSeek emerged in the AI realm -- claiming that it built a platform on par with ChatGPT, but for a mere fraction of the cost. Basically overnight, the investment world went into shock, and unsurprisingly, Nvidia stock tanked. All of a sudden, the bull narrative surrounding Nvidia seems to have disappeared as investors continue panic selling.
I'm going to detail just how much Nvidia has been impacted by DeepSeek so far. Moreover, I'll make the case for why I think the sell-off is overblown and explain why I think Nvidia will become the first $4 trillion stock on Wall Street.
NASDAQ: NVDA
Key Data Points
How has DeepSeek impacted Nvidia?
Prior to DeepSeek's arrival, Nvidia boasted a market capitalization of $3.5 trillion. As of this writing (Feb. 4), Nvidia's value has dropped by almost $600 billion.
NVDA Market Cap data by YCharts
This is quite a decline in value, considering investors don't yet know how DeepSeek is going to change the trajectory of Nvidia's business. I say that because the company has not yet reported earnings for the fourth quarter of 2024 -- and isn't scheduled to do so until Feb. 26.
What companies are standing in Nvidia's way?
The three most valuable companies in the world, as measured by market cap, are Apple, Microsoft, and Nvidia. For the sake of this article, one of these three companies has the most realistic chance of reaching a $4 trillion valuation before any of its cohorts.
As I explained in a prior article, much of the upside in Apple stock hinges on a successful iPhone 16 launch and adoption rates of the company's new AI, dubbed Apple Intelligence. While this is my personal opinion, I'm not entirely convinced that Apple Intelligence will be a game changer, so I have some doubts over whether investors will be enthusiastic buyers of Apple stock this year.
Although I see Microsoft as more of a growth opportunity compared to Apple, I am questioning what direction the stock could be headed. Much of the bull thesis surrounding Microsoft is rooted in the company's cloud computing infrastructure, Azure. Azure competes heavily with Amazon Web Services (AWS) and Google Cloud Platform (GCP).
While each of these cloud hyperscalers is investing billions into AI-powered services, the intense competitive landscape simply cannot be dismissed. While Azure is a robust business overall, demand trends can be quite difficult to forecast.
In my eyes, it's hard to match investor expectations with an unpredictable business. For this reason, I think Microsoft stock is a bit vulnerable and could experience sharp turns in either direction based on how investors feel about the performance of Azure and the company's AI investments.
Image source: Getty Images.
Why do I think Nvidia will become the first $4 trillion stock?
There are still a lot of unknown variables as they relate to precise dollar figures and the training methodologies that DeepSeek used to build its model, called R1. But even if the Chinese start-up did achieve a technological breakthrough in which it built highly capable AI for a lower cost compared to other models, is Nvidia really at risk here?
I'll ask the same question differently: If businesses can train AI for more efficient, less expensive protocols, what direction do you think spending on AI infrastructure will go?
According to Jevons paradox, spending would actually rise. This concept explores the idea that efficiencies brought by technology helps lead to lower prices, but paradoxically, winds up leading to more spending as goods and services become more accessible.
In other words, just because AI development might cost less over time, this does not also imply that demand for Nvidia's services would diminish. It's actually quite the contrary. I'm aligned with this idea, and I think demand levels for Nvidia's architecture could in fact enter a new phase of growth precisely because of DeepSeek.
In order for Nvidia to reach a $4 trillion valuation, shares would need to gain 38% from current levels (as of Feb. 4). Should investors be pleased with Nvidia's earnings report later this month, I wouldn't be surprised to see the stock bounce back to where it was before the DeepSeek hoopla -- in which case, investors would only need to see about a 14% share price increase to achieve the $4 trillion valuation.
If management can demonstrate that demand for its processors remains robust, then I think some new life in Nvidia stock is highly achievable. In my eyes, DeepSeek should be a net benefit for Nvidia in the long run, and I think the stock could be headed to new highs.
