The past couple of weeks have been quite turbulent in the capital markets. In late January, a Chinese start-up called DeepSeek sent investors into a panic as the company claimed to have built powerful artificial intelligence (AI) applications for much less than what businesses in the U.S. are spending. As a result, technology stocks have been spiraling downward.
One company that has been hit hard over the DeepSeek narrative is Nvidia (NVDA +0.10%). With the company scheduled to report fourth-quarter and full-year 2024 earnings on Feb. 26, investors are anxiously waiting to see just how much DeepSeek may affect Nvidia's business.
Below, I'm going to explain why investors may not need to wait until later this month to assess if Nvidia stock is a good buy heading into earnings.
NASDAQ: NVDA
Key Data Points
Big tech just squashed the DeepSeek fears
The bear narrative surrounding Nvidia during the past two weeks is that if DeepSeek's claims are true, businesses may scale back their AI infrastructure spending. If this were to happen, demand for Nvidia's expensive data center graphics processing units (GPU) would likely slow -- thereby calling into question what the company's future prospects look like.
Thankfully, Nvidia's "Magnificent Seven" cohorts have already reported earnings. And one common thread stitching each of these behemoths together is that spending on AI infrastructure is on the rise. Comments made by management from Microsoft, Meta Platforms, Alphabet, and Amazon have signaled that capital expenditure (capex) budgets for this year could be in excess of $300 billion if they all spend at the high end of their provided ranges.
This is an important figure to understand, as each of these companies already uses Nvidia products. And while I'll admit that these companies are also investing in their own custom chipware, it's unlikely that they will migrate entirely away from Nvidia anytime soon. For this reason, I see the rising AI infrastructure spending as a positive sign for Nvidia -- and one that underscores the company's robust growth prospects.
Image source: Getty Images.
How does Nvidia stock typically perform after an earnings report?
The chart below shows Nvidia's stock price movement during the past three years. I've annotated the company's earnings reports as seen in the purple circles with the letter "E" in the middle.
One thing is abundantly clear from the trends illustrated above: Nvidia shares usually rise after an earnings report. While the days leading up to or shortly after an earnings call may carry some more pronounced volatility, Nvidia's resilience always seems to shine through in the end.
Should you buy Nvidia stock before Feb. 26?
If you're going purely based on history, the trends seen in the stock chart above would suggest that Nvidia stock will be headed higher after it reports earnings on Feb. 26. But smart investors know all too well that past performance shouldn't be used as your sole barometer.
To me, the more important idea explored here is that Nvidia's largest customers have all come out and said that they remain committed to their AI growth roadmaps. And a subtle pillar supporting these AI ambitions is significant spending on capex. In theory, this bodes very well for Nvidia's future.
While exact timing isn't something I really encourage, I think this is a unique situation in which it's not worth waiting a few more weeks just to hear what Nvidia's management has to say about DeepSeek. The breadcrumbs dropped by big tech should serve as a good proxy for what Nvidia investors can expect in terms of growth.
For this reason, I'd buy the dip in Nvidia now -- before the company's earnings report later this month. The current sell-off represents an unusual window during which Nvidia stock is trading at an abnormally low valuation, which I think is worth taking advantage of.
