Aswath Damodaran, a renowned professor at New York University’s Stern School of Business, has made a significant prediction regarding Nvidia’s stock, forecasting a potential 37% drop. Known as the “Dean of Valuation,” Damodaran’s expertise in financial valuation has earned him considerable respect. His recent analysis points to DeepSeek, a Chinese startup, as a key factor in this prediction. DeepSeek claims to offer AI solutions at a lower cost than industry giants like OpenAI, suggesting a possible disruption in the market.
DeepSeek’s emergence has sparked discussions about a bifurcated AI market, with Damodaran arguing that this could lead to a division between premium and commoditized AI products. This bifurcation, he suggests, might threaten Nvidia’s dominance in the chip market. However, the author of the original analysis remains skeptical, questioning whether DeepSeek’s technology truly matches or exceeds current models. The startup’s funding is also under scrutiny, with reports suggesting more substantial investments than initially disclosed. If true, this might mitigate the perceived threat to Nvidia.
The author counters that even if DeepSeek’s claims hold, the commoditization of chips might not be detrimental to Nvidia. Major clients like Microsoft, Amazon, and Meta are diversifying their chip suppliers, including competitors like AMD, not due to dissatisfaction with Nvidia, but to optimize costs and reduce dependency. This strategy is part of a broader industry trend, where commoditization is inevitable as more players enter the market. Thus, DeepSeek’s entrance might accelerate this trend but not necessarily harm Nvidia’s position.
Looking at growth prospects, concerns arise about Nvidia’s future growth as DeepSeek’s arrival prompts questions about market dynamics. However, major tech companies continue to invest heavily in AI infrastructure, with leaders like Zuckerberg and Microsoft’s executives reaffirming their commitment. This sustained investment suggests that Nvidia, with its leading-edge technology, will remain central to AI advancements. The author believes that despite short-term stock fluctuations, Nvidia’s fundamentals remain strong.
The author also notes that despite robust capital expenditures by clients, Nvidia’s stock has experienced declines. This selling trend might continue until Nvidia’s earnings report, which could clarify future AI spending. The author anticipates that Nvidia will emphasize strong demand for its high-end chips during this report, potentially leading to a stock rebound. Viewing current dips as buying opportunities, the author remains bullish on Nvidia’s long-term prospects.
In conclusion, while Damodaran’s prediction highlights possible risks, the author presents a contrarian view, arguing that DeepSeek’s impact might be overstated. The commoditization of chips and continued investments by major clients in AI suggest that Nvidia’s position is more resilient than perceived. The author believes that rather than signaling a decline, DeepSeek’s entrance could underscore the robust demand for Nvidia’s technology, driving the stock to new highs.
