Demand for Nvidia’s expensive artificial intelligence chips will be closely watched when the company reports earnings on Wednesday. Investors are questioning the value of heavy AI spending after low-cost AI models from China’s DeepSeek disrupted the industry.
Impact of DeepSeek’s AI Models on Nvidia
DeepSeek’s rise in January resulted in Nvidia losing $593 billion in market value, marking the largest one-day loss for any U.S. company. The emergence of DeepSeek’s competitive, low-cost AI models has raised doubts about whether Nvidia’s cutting-edge chips are essential for staying ahead in the AI race.
“Investors have been very concerned about DeepSeek and the impact that it will have on demand,” said Ivana Delevska, chief investment officer of Spear Invest. “If they (Nvidia) can show that they’re still able to ‘beat and raise,’ it would be pretty positive for the stock.”
Revenue Expectations and Market Dynamics
Nvidia is expected to report a 72% surge in revenue to $38.05 billion for its fourth quarter, its slowest growth in seven quarters, and forecast a 60% revenue increase for the first quarter ending April. The company previously experienced five straight quarters of triple-digit growth until October.
Despite concerns, demand for Nvidia’s AI chips has remained strong. Major clients such as Microsoft and Meta have continued their steep data-center spending. “The CapEx plans communicated by Meta, Microsoft, Google, and Amazon paint a very positive picture of the near-term demand backdrop for Nvidia,” said John Belton, portfolio manager at Gabelli Funds.
Challenges with Blackwell Chip Launch
Shipments of Nvidia’s Blackwell chips are expected to have accelerated in the fourth quarter, boosting revenue but squeezing margins due to costly production ramp-ups. Analysts anticipate Nvidia’s adjusted gross margin to decline by over three percentage points to 73.5% in the fourth quarter.
With the Blackwell series, Nvidia is transitioning from selling individual chips to full AI computing systems like the GB200 NVL72, which include GPUs, CPUs, and networking equipment. This shift has complicated production ramp-ups and increased costs.
Production challenges included supply chain constraints with contract manufacturer TSMC and initial design flaws that affected chip yields. Despite these issues, Nvidia stated in November that Blackwell would exceed initial revenue projections for the fourth quarter.
Investor Sentiment and Future Outlook
“Blackwell has been a complicated set of products to launch,” Belton noted. “With the magnitude of out-performance that investors have become used to, Nvidia’s delivery could be smaller this time around due to these dynamics with the Blackwell launch.”
All eyes are on Nvidia’s earnings and guidance as investors gauge how it navigates competition from DeepSeek and the evolving landscape of AI chip demand.
