Nvidia's upcoming earnings call is more than just a routine financial update; it's a pivotal moment for the company to address head-on the market's reaction to DeepSeek, a Chinese AI startup that has stirred both excitement and anxiety among investors. After a significant market capitalization drop following DeepSeek's R1 model release, Nvidia CEO Jensen Huang has the opportunity to reassure backers and reinforce Nvidia's position as a fundamental player in the AI landscape.
The emergence of DeepSeek's R1 model sent shockwaves through the market, briefly costing Nvidia $600 billion in market capitalization. What made DeepSeek's achievement particularly unnerving was its reported efficiency: the model rivaled OpenAI's o1 using fewer and less powerful chips. This raised concerns about the capital and GPU requirements needed to maintain a competitive edge in the AI race.
"DeepSeek's remarkable feat has shaken the industry's assumptions about how much capital or GPU chips a company needs to stay ahead of the competition," – Barclays analysts.
Analysts predict continued growth in Nvidia's data center revenue, driven by massive buildouts from major players like:
These investments signal sustained demand for Nvidia's chips, despite DeepSeek's efficiency claims.
"Despite DeepSeek's supposed 'revolutionary' optimizations, there is no change thus far to spending intentions at NVDA large customers including Microsoft and Meta," - Vivek Arya, Bank of America analyst.
Further bolstering this outlook is the progress of models like Grok 3 from Elon Musk's xAI, supported by a growing infrastructure of GPU-packed data centers.
Nvidia's latest chip series, Blackwell, faced initial challenges with a slow rollout due to manufacturing and overheating issues. However, analysts anticipate a strong ramp-up, with demand expected to outstrip supply for several quarters.
"Demand for Blackwell is very strong and will outstrip supply for several quarters," - Daniel Morgan, Synovus senior portfolio manager.
A successful Blackwell ramp-up is crucial, as these chips offer higher profit margins and are expected to dominate Nvidia's GPU sales in the near future.
Growth in inference demand, the process of using and improving AI models, will be a key indicator of the value consumers and businesses find in AI tools. Nvidia needs to demonstrate that AI workloads are increasingly shifting towards inference, which requires substantial GPU power. CEO Jensen Huang has consistently emphasized the growth of inference across Nvidia's platforms.
Investors will be keen to see progress in the software layers of Nvidia's tech stack. This signifies maturity in AI products and strengthens a potentially more defensible aspect of Nvidia's business compared to chip manufacturing alone.
"What Nvidia talks about on its long-term moats and its possible deployment on the AI application side probably matters more this time," - Morgan Stanley analysts.
Nvidia must also navigate the complexities of US-China relations. Potential policy shifts under a new or returning Trump administration could significantly impact Nvidia's business.
Despite the challenges, Nvidia's share price has largely recovered from the DeepSeek-induced drop. Huang's task on Wednesday is to reassure investors that any headwinds will be manageable and to reaffirm Nvidia's fundamental role in the ongoing AI revolution. The company's ability to demonstrate continued growth, innovation, and strategic navigation will be critical in maintaining investor confidence and driving future success.