Nvidia Earnings Loom: Will DeepSeek Have a Lasting Effect?

For the past two years, artificial intelligence has fueled an extraordinary bull run in the stock market, with large language models and AI-powered applications transforming the world. No company has benefited more from this revolution than Nvidia (NVDA). Once a respectable $350 billion gaming chip producer, Nvidia has surged to a staggering $3 trillion market cap company, cementing its position as the undisputed leader in AI hardware.However, with its quarterly earnings release on Wednesday after the market close, some investors are questioning whether Nvidia’s relentless climb is running out of steam. A recent development in the AI landscape, the emergence of DeepSeek, has sparked fresh debate about the sustainability of Nvidia’s dominance.In this article we will address this rapidly shifting dynamic and consider how hyperscalers, Nvidia’s primary customers, like Amazon (AMZN), Microsoft (MSFT), Alphabet (GOOGL) and now Alibaba (BABA) are reacting. Then we will look at Nvidia’s current earnings revision trend and assess the price chart to consider a tactical plan based on the technicals.Image Source: Zacks Investment ResearchWill DeepSeek Cut into Nvidia Sales?Last month, DeepSeek, a Chinese AI research company, unveiled a new model that it claims was trained using just a fraction of the compute resources required by its US competitors. This raised concerns that the massive AI infrastructure buildout might be slowing down. If training costs are falling faster than expected, some worry that companies will need fewer of Nvidia’s leading-edge GPUs.The reality is more nuanced. While DeepSeek’s breakthrough highlights the rapid pace of innovation, it may not necessarily diminish the need for Nvidia’s high-performance chips. Instead, lower training costs could accelerate AI adoption and expand the market for AI applications. As AI technology becomes more accessible, demand for compute power could increase rather than decrease.Hyperscalers like Microsoft, Amazon, and Alphabet have yet to adjust their capex budgets, with plans of over $300 billion in spending this year between them. Furthermore, these infrastructure investments represent a multi-year outlook, and bolster not just their AI-businesses but their other business segments as well.AI Spending Remains Strong, but Macro Risks Are GrowingBeyond technological shifts, macroeconomic and political factors could play an equally important role in Nvidia’s trajectory. A new political regime is bringing fresh uncertainties, and this week has brought a notable rise in volatility.Aggressive fiscal tightening under the newly created Department of Government Efficiency (DOGE) could severely dampen economic growth in the near-term. Additionally, constantly changing rhetoric and policy around tariffs are adding a significant degree of ambiguity to the market.All of this also impacts inflation and employment dynamics, which will likely be affected as well.Despite these concerns, AI spending and growth remains robust. Microsoft’s partnership with OpenAI is already generating an estimated $11 billion in annual revenue. Meanwhile, Chinese tech giant Alibaba recently announced a $52 billion increase in capital expenditures, signaling its continued investment in AI infrastructure. These indicators suggest that the AI boom is still in its early stages, even if training costs are coming down.Technical Setup in NVDA StockThe price action in Nvidia’s stock offers some potential insight into what we can expect moving forward. In the chart below, we can see that Nvidia has been trading within a broad range between $150 and $110 over the last five months, which is nested within a broader ascending channel.Based on this chart, the price action shows the $110 level as an interesting point of confluence. As earnings reports can lead to sharp moves, I wonder if the stock could trade to this level of support following the report. If the stock trades down there and shows signs of buying it could be a compelling spot to try and initiate a position. However, a material close below the $110 level could signal further downside.Alternatively, investors should keep an eye on the upper bounds of the range as well. If NVDA can break out above the $150 level, it will likely indicate another major bull run is beginning.Image Source: TradingViewNvidia’s Growth Outlook Moderates but is Still StrongWhile Nvidia remains a dominant force, Wall Street analysts have begun to temper their earnings expectations. The company holds a Zacks Rank #2 (Buy) rating, reflecting positive sentiment but also a more measured outlook. Nvidia sat atop the Zacks rank for nearly two years as analysts upgraded their earnings outlooks week after week, so this slowing of earnings revisions is noteworthy.Nvidia is currently trading at 31x forward earnings, a seemingly reasonable valuation for such a rapidly growing and integral company. Sales are expected to grow 112% this year and 48% next year, while earnings are projected to rise 126% and 43%, respectively.With earnings approaching, investors will be looking for continued strength in AI-related sales as well as any updates on forward guidance. Data center revenue remains a key focus, as it is Nvidia’s largest and most important growth driver. Gross margins will also be under scrutiny, as any decline could indicate pricing pressure or rising costs. Management’s commentary on AI demand, geopolitical risks, and the competitive landscape will be critical in shaping investor sentiment.Image Source: Zacks Investment ResearchWhat to Expect from Nvidia’s Earnings ReportNvidia is set to report earnings on Wednesday evening, and the anticipation is high. While a major downside surprise seems unlikely, investor reactions to earnings reports are often unpredictable. Even a strong quarter could lead to profit-taking if guidance fails to meet elevated expectations.Furthermore, if the market continues to weaken broadly, we have often seen narratives shift in accordance with the action, so the report may be interpreted in any number of ways.Despite these uncertainties, the AI revolution is still in its early stages. The emergence of DeepSeek and the broader decline in training costs do not signal the end of Nvidia’s dominance. Instead, they point to an evolving AI landscape where Nvidia is likely to remain the key hardware partner for years to come.Only $1 to See All Zacks' Buys and SellsWe're not kidding.Several years ago, we shocked our members by offering them 30-day access to all our picks for the total sum of only $1. No obligation to spend another cent.Thousands have taken advantage of this opportunity. Thousands did not - they thought there must be a catch. Yes, we do have a reason. We want you to get acquainted with our portfolio services like Surprise Trader, Stocks Under $10, Technology Innovators,and more, that closed 256 positions with double- and triple-digit gains in 2024 alone.See Stocks Now >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Amazon.com, Inc. (AMZN): Free Stock Analysis Report Microsoft Corporation (MSFT): Free Stock Analysis Report NVIDIA Corporation (NVDA): Free Stock Analysis Report Alphabet Inc. (GOOGL): Free Stock Analysis Report Alibaba Group Holding Limited (BABA): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks