Baked in the Cake: Definition, How It Works, Example

By Frank Bass – Updated Mar 8, 2025 at 5:28 PM

Key Points

The term "baked in the cake" implies stock movements anticipated due to known factors.
Understanding this concept can help investors avoid buying overvalued stocks.
Analyzing historical price movements can provide clues about embedded expectations.

You may have heard that a looming recession is “baked in the cake,” or that a certain stock’s price didn’t fall because disappointing results were already “baked in the cake.” Although it’s always wise to take this description with a grain of salt, it simply means that a result is expected and shouldn’t come as a surprise.

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Woman looking at chocolate cake — Image source: Getty Images.

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“Baked in the cake” share prices

The phrase is also commonly used to describe the failure of a stock to react to news. For example, Nvidia (NVDA +2.25%) stock almost doubled between early 2024 and early 2025. However, the launch of a competing artificial intelligence (AI) large language model from China prompted its shares to slide about 20% in late January.

Given that Nvidia was due to report its earnings less than a month after the DeepSeek model was introduced, investors might have been a bit concerned about a decline in earnings. Nvidia shares have typically risen 7% in the month after earnings reports and the company reported extremely robust earnings during the first three quarters of 2024. But Nvidia’s strong performance and $3 trillion market capitalization meant most investors weren’t immediately worried about the impact of DeepSeek on Nvidia since the potential for disruption had already been baked in the cake.

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About the Author

Frank Bass is a contributing Motley Fool stock market analyst and editor covering energy, healthcare, consumer, and financial sectors. Frank has decades of experience in financial journalism, holding reporting and editing roles at The Wall Street Journal, The Associated Press, and Bloomberg. He also currently edits research on the global energy transition. He holds a bachelor’s degree in journalism from Texas Tech University and is a graduate student at the University of Alaska Fairbanks. Fun Facts: Frank has hiked The Long Trail in Vermont from end to end, and currently lives in a semi-dry cabin in Interior Alaska.

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None has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.